SALES

Land Bank of the Philippines vs. Barbara Sampaga Poblete

G.R. No. 196577 February 25, 2013
By: Rosane C. Apatan

Principle:
Where the deed of sale states that the purchase price has been paid but in fact has never been
paid, the deed of sale is void ab initio for lack of consideration.

Facts:

Poblete obtained a P300,000.00 loan from Kabalikat ng Pamayanan ng Nagnanais Tumulong at

Yumaman Multi-Purpose Cooperative (Kapantay). Poblete mortgaged Lot No. 29 to Kapantay to
guarantee payment of the loan. Kapantay, in turn, used OCT No. P-12026 as collateral under its Loan
Account with Land Bank-Sablayan Branch.

Poblete decided to sell Lot No. 29 to pay her loan. Maniego agreed to buy Lot No. 29 for
P900,000.00, but Maniego suggested that a deed of absolute sale for P300,000.00 be executed instead to
reduce the taxes. Thus, Poblete executed the Deed of Absolute Sale dated 9 November 1998 with
P300,000.00 as consideration. In the Deed dated 9 November 1998, Poblete described herself as a
"widow." The Deed was delivered to Maniego through Poblete’s son in law, Balen. Poblete did not
however receive the purchase price. Later, Poblete agreed to have the payment deposited in her Land
Bank Savings Account.

Maniego, instead of depositing payment to Poblete’s account paid Kapantay’s Loan Account for
P448,202.08. Thereafter, Maniego applied for a loan of P1,000,000.00 with Land Bank, using OCT No. P
12026 as collateral. Land Bank alleged that as a condition for the approval of the loan, the title of the
collateral should first be transferred to Maniego. Pursuant to a Deed of Absolute Sale dated 11 August
2000 (Deed dated 11 August 2000), the Register of Deeds of Occidental Mindoro issued Transfer
Certificate of Title in Maniego’s name and the loan proceeds were then released. Subsequently, Maniego
failed to pay the loan so Land Bank filed an Application for Extra-judicial Foreclosure of Real Estate
Mortgage.

Poblete filed a Complaint for Nullification of the Deed dated 11 August 2000 and TCT No. T-
20151, Reconveyance of Title and Damages with Prayer for Temporary Restraining Order and/or
Issuance of Writ of Preliminary Injunction. Named defendants were Maniego, Land Bank, the Register of
Deeds of Occidental Mindoro and Elsa Z. Aguirre in her capacity as Acting Clerk of Court of RTC San
Jose, Occidental Mindoro. In her Complaint, Poblete alleged that despite her demands on Maniego, she
did not receive the consideration of P900,000.00 for Lot No. 29. She claimed that without her knowledge,
Maniego used the Deed dated 9 November 1998 to acquire OCT No. P-12026 from Kapantay. Upon her
verification with the Register of Deeds, the Deed dated 11 August 2000 was used to obtain TCT No. T-
20151. Poblete claimed that the Deed dated 11 August 2000 bearing her and her deceased husband’s,
Primo Poblete, supposed signatures was a forgery as their signatures were forged. As proof of the forgery,
Poblete presented the Death Certificate dated 27 April 1996 of her husband and Report No. 294-502 of
the Technical Services Department of the National Bureau of Investigation showing that the signatures in
the Deed dated 11 August 2000 were forgeries.

Issue: Whether or not the sale of the subject land to Maniego is valid.

Ruling:

NO. It is a well-entrenched rule that a forged or fraudulent deed is a nullity and conveys no title.
Moreover, where the deed of sale states that the purchase price has been paid but in fact has never
been paid, the deed of sale is void ab initio for lack of consideration. Since the Deed dated 11 August
2000 is void, the corresponding TCT No. T-20151 issued pursuant to the same deed is likewise void. In
Yu Bun Guan v. Ong, the Supreme Court ruled that there was no legal basis for the issuance of the
certificate of title and the CA correctly cancelled the same when the deed of absolute sale was completely
simulated, void and without effect.

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 Since TCT No. T-20151 has been declared void by final judgment, the Real Estate Mortgage
constituted over it is also void. In a real estate mortgage contract, it is essential that the mortgagor be the
absolute owner of the property to be mortgaged; otherwise, the mortgage is void.

SPOUSES DELFIN O. TUMIBAY and AURORA T. TUMIBAY-deceased; GRACE JULIE ANN TUMIBAY
MANUEL, legal representative, Petitioners,
vs.
SPOUSES MELVIN A. LOPEZ and ROWENA GAY T. VISITACION LOPEZ, Respondents.
G.R. No.171692 June 3, 2013

By: Nina Grace G. Arañas

DOCTRINE:

In a contract to sell, the seller retains ownership of the property until the buyer has paid the price
in full. A buyer who covertly usurps the seller's ownership of the property prior to the full payment of the
price is in breach of the contract and the seller is entitled to rescission because the breach is substantial
and fundamental as it defeats the very object of the parties in entering into the contract to sell.

FACTS:

On March 23, 1998, petitioners filed a Complaint for declaration of nullity ab initio of sale, and
recovery of ownership and possession of land with the RTC of Malaybalay City. Petitioners alleged that
they are the owners of a lot in Sumpong, Malaybalay, Bukidnon in the name of petitioner Aurora.
Petitioner Aurora is the sister of Reynalda Visitacion (Reynalda). On July 23, 1997, Reynalda sold the
subject land to her daughter, respondent Rowena, through a deed of sale for an alleged unconscionable
amount of P95,000.00 although said property had a market value of more than P2,000,000.00. The said
sale was allegedly without the knowledge and consent of petitioners. Petitioners prayed that the deed of
sale be declared void ab initio and the lot be reconveyed to petitioners.

Respondents averred that on December 12, 1990, petitioners executed a special power of attorney
(SPA) in favor of Reynalda granting the latter the power to offer for sale the subject land; that sometime
in 1994, respondent Rowena and petitioners agreed that the former would buy the subject land for the
price of P800,000.00 to be paid on installment; that on January 25, 1995, respondent Rowena paid in cash
to petitioners the sum of $1,000.00; that from 1995 to 1997, respondent Rowena paid the monthly
installments thereon as evidenced by money orders; that, in furtherance of the agreement, a deed of sale
was executed and the corresponding title was issued in favor of respondent Rowena; that the subject sale
was done with the knowledge and consent of the petitioners as evidenced by the receipt of payment by
petitioners; Respondents prayed that the Complaint be dismissed.

The Trial Court ruled in favor of the petitioners, ruling that the the sale was null and void and the
subject land should be reconveyed to petitioners. The trial court further ruled that petitioners are not
entirely free from liability because they received from respondent Rowena deposits totaling $12,000.00.
Under the principle of unjust enrichment, petitioners should, thus, be ordered to reimburse the same
without interest. However, the CA reversed the RTC’s decision and ordered that the title to the subject
property shall remain in the name of the Appellant Rowena. The latter and her spouse were directed to
pay the balance of (P488,000.00) to the petitioners effective within 30 days from receipt of this Decision
and in case of delay, and to pay the legal rate of interests More importantly, the CA ruled that the selling
price of P800,000.00 for the subject land is deemed reasonable based on the testimony of respondent
Rowena as this was the selling price agreed upon by her and petitioner Delfin. Considering that
respondent Rowena proved that she remitted a total of $12,000.00 to petitioners and pegging the
exchange rate at that time at P26.00 per dollar, the appellate court ruled that P312,000.00 of the
P800,000.00 selling price was already received by petitioners. Thus, respondents are only liable for the
balance of P488,000.00.

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 As of July 19, 1997 or prior to the execution of the deed of sale dated July 23, 1997, the total
amount of monthly installments paid by respondent Rowena to petitioners was P260,626.50 or 32.58% of
the P800,000.00 purchase price. That full price was yet to be paid at the time of the subject transfer of
title was admitted by respondent Rowena on cross-examination. Rowena claims that the transfer of title
was proper because she had substantially paid the full amount of the purchase price and that this was
necessary as a security for the installments she had already paid. Petitioner now claims that Rowena
committed a substantial and fundamental breach of the contract to sell for premature transfer of title
which entitles the seller to rescission of the contract and to have the reconveyance of property back in
their favor.

ISSUE: W/N Rowena was in breach of the contract to sell for premature transfer oftitle despite her non-
payment of the full price.

HELD:

YES.Although we rule that there was indeed a contract to sell over the lot, we find that
respondent Rowena was in breach thereof because, at the time the aforesaid deed of sale was executed on
July 23, 1997, the full price of the subject land was yet to be paid. In arriving at this conclusion, we take
judicial notice of the prevailing exchange rates at the time.Thus, as of July 19, 1997 or prior to the
execution of the deed of sale dated July 23, 1997, the total amount of monthly installments paid by
respondent Rowena to petitioners was only P260,626.50 or 32.58% of the P800,000.00 purchase price.
That the full price was yet to be paid at the time of the subject transfer of title was admitted by respondent
Rowena on cross-examination.

Respondent Rowena tried to justify the premature transfer of title by stating that she had
substantially paid the full amount of the purchase price and that this was necessary as a security for the
installments she had already paid. However, her own evidence clearly showed that she had, by that time,
paid only 32.58% thereof. Neither can we accept her justification that the premature transfer of title was
necessary as a security for the installments she had already paid absent proof that petitioners agreed to
this new arrangement. However, she failed to prove that petitioners agreed to amend or novate the
contract to sell in order to allow her to acquire title over the subject land even if she had not paid the price
in full.

The premature transfer of title in the name of respondent Rowena was done without the
knowledge and consent of petitioners as she and her mother, Reynalda, never sought the consent of
petitioners prior to said transfer of title.

Respondent Rowena’s reliance on the SPA as the authority or consent to effect the premature
transfer of title in her name is plainly misplaced. The terms of the SPA merely authorized Reynalda to sell
the subject land at a price approved by petitioners. The SPA could not have amended or novated the
contract to sell to allow respondent Rowena to acquire the title over the subject land despite non-payment
of the price in full for the reason that the SPA was executed 4 years prior to the contract to sell. Thus,
Rowena made a unilateral determination that she had substantially paid the purchase price and that she is
entitled to the transfer of title as a form of security for the installments she had already paid, reasons, we
previously noted, as unjustified.

As a general rule, “rescission will not be permitted for a slight or casual breach of the contract,
but only for such breaches as are substantial and fundamental as to defeat the object of the parties in
making the agreement.”

Hence, we rule that Rowena’s act of transferring the title to the subject land in her name, without
the knowledge and consent of petitioners and despite non-payment of the full price thereof, constitutes a
substantial and fundamental breach of the contract to sell. The main object or purpose of a seller in
entering into a contract to sell is to protect himself against a buyer who intends to buy the property in
installments by withholding ownership over the property until the buyer effects full payment therefor. As
a result, the seller’s obligation to convey and the buyer’s right toconveyance of the property arise only
upon full payment of the price. Thus, a buyer who willfully contravenes this fundamental object or

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purpose of the contract, by covertly transferring the ownership of the property in his name at a time when
the full purchase price has yet to be paid, commits a substantial and fundamental breach which entitles the
seller to rescission of the contract. We, thus, rule that petitioners are entitled to the rescission of the
subject contract to sell.

ROBERN DEVELOPMENT CORPORATION AND RODOLFO M. BERNARDO, JR., vs.

PEOPLE’S LANDLESS ASSOCIATION REPRESENTED BY FLORIDA RAMOS AND NARDO
LABORA,
G.R. No. 173622, March 11, 2013
By: Vernie Rose A. Bacalso
Doctrines:

1. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. Thus, for a contract of sale to be valid, all of the following
essential elements must concur: “a) consent or meeting of the minds; b) determinate subject matter; and c)
price certain in money or its equivalent.

2. The decision to accept a bidder’s proposal must be communicated to the bidder. However, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures
to any written document, as acceptance may be expressed or implied.It can be inferred from the
contemporaneous and subsequent acts of the contracting parties.

Facts:

Al-Amanah, a registered corporation, owned a 2000-sq meter land in Davao City. The OIC of Al-
Amanah asked some members of PELA to desist from building their houses on the lot and to vacate the
same, unless they are interested to buy it.

In a letted, the informal settlers together with other members of PELA offered to purchase the lot
for P300,000.00, half of which shall be paid as down payment and the remaining half to be paid within
one year. On the letter, Al-Amanah made this annotation: “Subject offer has been acknowledged/received
but processing to take effect upon putting up of the partial amt. of P150,000.00 on or before April 15,
1993.”

PELA had deposited P150,000.00 as evidenced by four bank receipts. In the meantime, the PELA
members remained in the property and introduced further improvements.

Later, Al-Amanah, thru its Davao Branch Manager, wrote then PELA informing them of the
Head Office’s disapproval of PELA’s offer to buy the said 2,000-square meter lot. In a letter, PELA
replied that it had already reached an agreement with Al-Amanah regarding the sale of the subject lot
based on their offered price.

Meanwhile, Robern and Al-Amanah agreed on the sale on subject lot. A new TCT was issued in
favor of Robern.

PELA filed a suit for Annulment and Cancellation of Void Deed of Sale before the RTC of
Davao City. It insisted that it has a perfected contract of sale with Al-Amanah. However, in an apparent
act of bad faith and in cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite the
prior sale to PELA.

Al-Amanah claimed that the bank has every right to sell its lot to any interested buyer with the
best offer and thus they chose Robern. They clarified that the P150,000.00 PELA handed to them is not
part of the payment but merely a deposit in connection with its offer. They stressed that Al-Amanah never
entered into a sale with PELA for there was no perfected agreement as to the price since the Head Office
rejected PELA’s offer.

For their part, Robern asserted the corporation’s standing as a purchaser in good faith and for
value in the sale of the property, having relied on the clean title of Al-Amanah. They also alleged that the

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purported sale to PELA is violative of the Statute of Frauds as there is no written agreement covering the
same. RTC ruled in favor of Robern. CA reversed. Hence, this petition.

Issue:

Whether there was a perfected contract of sale between PELA and Al-Amanah?

Ruling:

No. A contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. Thus, for a contract of sale to be valid, all of the
following essential elements must concur: “a) consent or meeting of the minds; b) determinate subject
matter; and c) price certain in money or its equivalent.”

In the case at bench, there is no controversy anent the determinate subject matter, i.e., the 2,000-
square meter lot. As for the price, fixing it can never be left to the decision of only one of the contracting
parties. “But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a
perfected sale.” As regards consent, “[w]hen there is merely an offer by one party without acceptance of
the other, there is no contract.” The decision to accept a bidder’s proposal must be communicated to the
bidder. However, a binding contract may exist between the parties whose minds have met, although they
did not affix their signatures to any written document, as acceptance may be expressed or implied.It can
be inferred from the contemporaneous and subsequent acts of the contracting parties. The rule is that
except where a formal acceptance is so required, although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be
made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the
accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell.
Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the
contract of sale.

After scrutinizing the testimonial and documentary evidence in the records of the case, we find no
proof of a perfected contract of sale between Al-Amanah and PELA. The parties did not agree on the
price and no consent was given, whether express or implied. We find that the March 18, 1993 letter
referred to was merely an offer to buy.

Neither can the note written by the bank that “[s]ubject offer has been acknowledged/received but
processing to take effect upon putting up of the partial amount of P150,000.00 on or before April 15,
1993” be construed as acceptance of PELA’s offer to buy. Taken at face value, the annotation simply
means that the bank merely acknowledged receipt of PELA’s letter-offer. Furthermore, by ‘processing,’
Al-Amanah only meant that it will ‘act on the offer’, i.e., it still has to evaluate whether PELA’s offer is
acceptable. Until and unless Al-Amanah accepts, there is as yet no perfected contract of sale. Notably
here, the bank never signified its ‘approval’ or ‘acceptance’ of the offer.

FIRST UNITED CONSTRUCTORS CORP vs. BAYANIHAN AUTOMOTIVE CORPORATION

G.R. No. 164985  January 15, 2014
By: Hope Cesely Baquero

Doctrine/s:

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is sued
by means of a legal or equitable right resulting from a counterclaim arising out of the same transaction.

Facts:

Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star Construction
Corporation (Blue Star) were associate construction firms sharing financial resources, equipment and
technical personnel on a case-to-case basis. They ordered six units of dump trucks from the respondent, a

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domestic corporation engaged in the business of importing and reconditioning used Japan-made trucks,
and of selling the trucks to interested buyers. Upon presentment of the checks for payment, the
respondent learned that FUCC had ordered the payment stopped. The respondent immediately demanded
the full settlement of their obligation from the petitioners, but to no avail. Instead, the petitioners
informed the respondent that they were withholding payment of the checks due to the breakdown of one
of the dump trucks they had earlier purchased from respondent, specifically the second dump truck
delivered.

Respondent commenced this action for collection, seeking payment of the unpaid balance in the
amount of P735,000.00 represented by the two checks. The petitioner informed the respondent of the
defects in that unit but the respondent had refused to comply with its warranty, compelling them to incur
expenses for the repair and spare parts and prayed that the respondent return the price of the defective
dump truck worth P830,000.00 minus the amounts of their two checks worth P735,000.00, with 12% per
annum interest on the difference of P90,000.00. The respondent stated that the petitioners were not legally
justified in withholding payment of the unpaid balance of the purchase price of the Hino Prime Mover
and the Isuzu Transit Mixer due the alleged defects in second dump truck because the purchase of the two
units was an entirely different transaction from the sale of the dump trucks, the warranties for which
having long expired.

RTC rendered its judgment, finding the petitioners liable to pay for the unpaid balance of the
purchase price. The CA affirmed the judgment of the RTC. It held that the remedy of recoupment could
not be properly invoked by the petitioners because the transactions were different.

Issue/s:

Whether or not the legal principle of recoupment is applicable in this case.

Held:

The decision of the CA is affirmed. Recoupment (reconvencion) is the act of rebating or

recouping a part of a claim upon which one is sued by means of a legal or equitable right resulting from a
counterclaim arising out of the same transaction. It is the setting up of a demand arising from the same
transaction as the plaintiff’s claim, to abate or reduce that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the
Civil Code, viz: “Article 1599. Where there is a breach of warranty by the seller, the buyer may,
at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty
by way of recoupment in diminution or extinction of the price; x x x”

The claim of defendants-appellants for breach of warranty, i.e. the expenses paid for the
repair and spare parts of dump truck no. 2 is therefore not a proper subject of recoupment since it
does not arise out of the contract. Consequently, the breakdown of one of the dump trucks did
not grant to petitioners the right to stop and withhold payment of their remaining balance on the
last two purchases. So ordered.

Fort Bonifacio Development Corp. vs. Fong

GR No. 209370 March 25, 2015
By: Mel-Lisanina A. Bautista

Facts:

FBDC, entered into a Trade Contract with MS MAxco Company for the execution of the
structural and architectural works of one of its condominium projects. Records show that FBDC had the
right to withhold 5% of the contract price as retention money.

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 Under the Trade Contract, FBDC had the option to hire other contractors to rectify any errors
committed by MS Maxco by reason of its negligence, act, omission, or default, as well as to deduct or set-
off any amount from the contract price in such cases. Hence, when MS Maxco incurred delays and failed
to comply with the terms of the Trade Contract, FBDC took over and hired other contractors to complete
the unfinished construction and deducted the additional expenses from MS Maxco’s retention money.

The Trade Contract likewise provided that MS Maxco is prohibited from assigning or transferring
any of its rights, obligations, or liabilities under the said Contract without the written consent of FBDC.

5 year later, FBDC received a letter from the counsel of Fong informing it that MS Maxco had
already assigned its receivables from FBDC to Fong by virtue of a notarized Deed of Assignment. FBDC
refused to deliver as the same was not yet due and demandable. A year after, FBDC informed Fong that
after rectification of the defects in the Project, nothing was left of its retention money. This prompted
Fong to file the instant case.

Issue: Is FBDC bound by the Deed of Assignment?

Held: No, FBDC is not bound.

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received from
the decedent.

When a person assigns his credit to another person, the latter is deemed subrogated to the rights
as well as to the obligations of the former.By virtue of the Deed of Assignment, the assignee is deemed
subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as
those which bound the assignor.Accordingly, an assignee cannot acquire greater rights than those
pertaining to the assignor.The general rule is that an assignee of a non-negotiable chose in action acquires
no greater right than what was possessed by his assignor and simply stands into the shoes of the latter.

Applying the foregoing, the Supreme Court finds that MS Maxco, as the Trade Contractor, cannot
assign or transfer any of its rights, obligations, or liabilities under the Trade Contract without the written
consent of FBDC, the Client, in view of Clause 19.0 on “Assignment and Sub-letting” of the Trade
Contract between FBDC and MS Maxco which explicitly provides that: “The Trade Contractor
[MsMaxco] shall not, without written consent of the Client [FBDC], assign or transfer any of his rights,
obligations or liabilities under this Contract.”

ROBERTO R. DAVID vs. EDUARDO C. DAVID

[G.R. No. 162365; Jan. 14, 2015]
By: Jasmine Rawen S. Cataquis

DOCTRINES:

Article 1616, the seller given the right to repurchase may exercise his right of redemption by
paying the buyer: (a) the price of the sale, (b) the expenses of the contract, (c) legitimate payments made
by reason of the sale, and (d) the necessary and useful expenses made on the thing sold.

A redemption within the period allowed by law is not a matter of intent but of payment or valid
tender of the full redemption price within the period. Verily, the tender of payment is the seller’s
manifestation of his desire to repurchase the property with the offer of immediate performance.

FACTS:

The parties to this case are first cousins and former business partners. On July 7, 1995,
respondent Eduardo and his brother Edwin David sold their inherited properties to Roberto. This includes
a parcel of land located in Baguio City and two (2) truck tractors. A deed of sale with assumption of
mortgage (deed of sale) embodied the terms of their agreement, stipulating that the consideration for the
sale was P6,000,000.00, of which P2,000,000 was to be paid to Eduardo and Edwin, and the

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remaining P4,000,000.00 to be paid to Development Bank of the Philippines (DBP) in Baguio City to
settle the outstanding obligation secured by a mortgage on such properties. The parties further agreed to
give Eduardo and Edwin the right to repurchase the properties within a period of three years from the
execution of the deed of sale based on the purchase price agreed upon, plus 12% interest per annum

Later, On April 1997, Roberto and Edwin executed a Memorandum of Agreement with the Sps.
Martinez and Go to sell the Baguio property to the latter for P10,000,000.00 and in order to avoid
multiple taxes Edwin will execute the necessary Deed of Absolute Sale in favor of [the Spouses Go], in
lieu of [Roberto]. The Spouses Go then deposited the amount of to Roberto’s account.

After the execution of the MOA, Roberto gave Eduardo P2,800,000.00 and returned to him one
of the truck tractors and trailers subject of the deed of sale. Eduardo demanded for the return of the other
truck tractor and trailer, but Roberto refused to heed the demand.

Thus, Eduardo initiated this replevin suit against Roberto, alleging that he was exercising the
right to repurchase under the deed of sale; and that he was entitled to the possession of the other motor
vehicle and trailer. In his answer, Roberto denied that Eduardo could repurchase the properties in
question; and insisted that the MOA had extinguished their deed of sale by novation. The RTC rendered a
judgment in favor of Eduardo holding that the stipulation giving Eduardo the right to repurchase had
made the deed of sale a conditional sale.

Roberto appealed to the CA. The CA promulgated its decision affirming the RTC. Hence, this
present petition.

ISSUE: Whether the Court of Appeals erred in holding that the respondents has exercised their right to
repurchase.

RULING:

No. A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides
that:
"Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article
1616 and other stipulations which may have been agreed upon."

Conformably with Article 1616, the seller given the right to repurchase may exercise his right of
redemption by paying the buyer: (a) the price of the sale, (b) the expenses of the contract, (c) legitimate
payments made by reason of the sale, and (d) the necessary and useful expenses made on the thing sold.

The CA and the RTC both found and held that Eduardo had complied with the conditions
stipulated in the deed of sale and prescribed by Article 1616 of the Civil Code.

From the P10 Million purchase price which was directly paid to the defendant, the latter deducted
his expenses plus interests and the loan, and the remaining amount he turned over to the plaintiff. This
testimony is an unequivocal acknowledgement from defendant that plaintiff and his co-heirs exercised
their right to repurchase the property within the agreed period by satisfying all the conditions stipulated in
the Deed of Sale with Assumption of Mortgage. Moreover, defendant returned to plaintiff the amount of
P2.8 Million from the total purchase price of P10.0 Million. This only means that this is the excess
amount pertaining to plaintiff and co-heirs after the defendant deducted the repurchase price of P2.0
Million plus interests and his expenses. Add to that is the fact that defendant returned one of the trucks
and trailers subject of the Deed of Sale with Assumption of Mortgage to the plaintiff. This is, at best, a
tacit acknowledgement of the defendant that plaintiff and his co-heirs had in fact exercised their right to
repurchase.

In Metropolitan Bank and Trust Company v. Tan, the Court ruled that a redemption within the
period allowed by law is not a matter of intent but of payment or valid tender of the full redemption price
within the period. Verily, the tender of payment is the seller’s manifestation of his desire to repurchase
the property with the offer of immediate performance. As we stated in Legaspi v. Court of Appeals, a

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sincere tender of payment is sufficient to show the exercise of the right to repurchase. Here, Eduardo paid
the repurchase price to Roberto by depositing the proceeds of the sale of the Baguio City lot in the latter’s
account. Such payment was an effective exercise of the right to repurchase.

MARIANO LIM vs. SECURITY BANK CORPORATION

[G.R. No. 188539; March 12, 2014]
By: Rhobie S. Corbo

Doctrine:
A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.

FACTS:
Petitioner (Lim) executed a Continuing Suretyship in favor of respondent (Security Bank
Corporation) to secure "any and all types of credit accommodation that may be granted by the bank
hereinto and hereinafter" in favor of Raul Arroyo for the amount of P2,000,000.00 which is covered by a
Credit Agreement/Promissory Note. Said promissory note stated that the interest on the loan shall be 19%
per annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully
paid when due, an additional penalty of 2% per month of the total outstanding principal and interest due
and unpaid, shall be imposed.

In turn, the Continuing Suretyship executed by petitioner stipulated that:

3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon
the pursuit of the Bank of whatever remedies it may have against the Debtor or the
collaterals/liens it may possess. If any of the Guaranteed Obligations is not paid or
performed on due date (at stated maturity or by acceleration), the Surety shall, without
need for any notice, demand or any other act or deed, immediately become liable
therefor and the Surety shall pay and perform the same.

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a
Notice of Final Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained
by Raul and Edwina Arroyo, including the interests and penalty fees amounting to P7,703,185.54, and
demanding payment thereof. For failure of petitioner to comply with said demand, respondent filed a
complaint for collection of sum of money against him and the Arroyo spouses. Since the Arroyo spouses
can no longer be located, summons was not served on them, hence, only petitioner actively participated in
the case.

 The Regional Trial Court of Davao (RTC) rendered judgment against petitioner and the Court of
Appeals affirmed the RTC judgment but with modification on the computation of the interest.

ISSUE:
1. Whether or not petitioner may validly be held liable for the principal debtor's loan obtained six
months after the execution of the Continuing Suretyship.

HELD:
YES, Petitioner is liable for the principal of the loan, together with the interest and penalties due
thereon, even if said loan was obtained by the principal debtor even after the date of execution of the
Continuing Suretyship.

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in favor of
another party, called the obligee. Although the contract of a surety is secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom. This was explained in the
case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, where it was written:
The surety’s obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract
of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or

9
promisee of the principal is said to be direct, primary and absolute; in other words, he is directly
and equally bound with the principal.

Thus, suretyship arises upon the solidary binding of a person deemed the surety with the principal
debtor for the purpose of fulfilling an obligation. A surety is considered in law as being the same party
as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable.

A Continuing Suretyship, which the Court described in Saludo, Jr. v. Security Bank
Corporation as follows:
The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise: Comprehensive or continuing surety agreements are, in fact, quite
commonplace in present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company, normally requires the
projected principal debtor to execute a continuing surety agreement along with its sureties. By executing
such an agreement, the principal places itself in a position to enter into the projected series of transactions
with its creditor; with such suretyship agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor.

The terms of the Continuing Suretyship executed by petitioner are very clear. It states that
petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately
become liable and shall pay “all credit accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings,  amendments or novations thereof, as well as (i)
all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts,
books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the
Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined herein below.”

AQUILES RIOSA vs. TABACO LA SUERTE CORPORATION,

G.R. No. 203786 October 23, 2013
By: Lucks Mae Digaum
Doctrine/s:

Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment there is a meeting of
minds on the thing which is the object of the contract and on the price.

Facts:

AquilesRiosa borrowed money from SiaKoPio, the CEO of the Tobaco La Suerte Corporation
(La Suerte) amounting to P50, 000. SiaKoPio asked Aquiles let him buy the lot the latter owns in lieu of
the money loaned to him. However, Aquiles refused to sell the lot so SiaKoPio made Aquiles sign a
document purporting to be an undertaking of his loan which he later found out to be a Deed of Absolute
Sale executed allegedly by him in favor of SiaKoPio and then passed on to La Suerte which in turn sent a
notice to vacate to AquilesRiosa.

Aquiles then filed a case against the corporation for Annulment/Declaration of Nullity of Deed of
Sale with the RTC. This was opposed by La Suerte on the ground that the sale between complainant and
SiakoPio was valid as evidenced by the Deed of Sale executed by Aquiles himself. The RTC then
rendered a decision in favor of the complainant but the decision was appealed by the respondents which
was reversed by the CA.

Hence, the said petition.

Issue/s:

Whether there was a perfected and valid contract of sale for the subject property between Aquiles
and La Suerte, through its Chief Executive Officer, SiaKoPio.

10
Held:

Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment there is a meeting of
minds on the thing which is the object of the contract and on the price.

The elements of a contract of sale are: a] consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; b] determinate subject matter; and c] price certain in money or its
equivalent.

In this case, there was no clear and convincing evidence that Aquiles definitely sold the subject property
to La Suerte, nor was there evidence that La Suerte authorized its chief executive officer, SiaKoPio, to
negotiate and conclude a purchase of the property. Aquiles’ narration in open court is clear that he did not
intend to transfer ownership of his property.

The fact that the alleged deed of sale indubitably bore Aquiles’ signature deserves no evidentiary value
there being no consent from him to part with his property. Had he known that the document presented to
him was an instrument of sale, he would not have affixed his signature on the document. It has been held
that the existence of a signed document purporting to be a contract of sale does not preclude a finding that
the contract is invalid when the evidence shows that there was no meeting of the minds between the seller
and buyer.

Spouses Roque vs. Aguado et. al,

G.R. No. 193787, April 7, 2014)
By: Cheska Marie D. Geli

Doctrines:

-The essence of an action for reconveyance is to seek the transfer of the property which was wrongfully
or erroneously registered in another person’s name to its rightful owner or to one with a better right;

-Where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the
payment of the purchase price, the contract is only a contract to sell even if their agreement is
denominated as a Deed of Conditional Sale.

- It is essential to distinguish between a contract to sell and a conditional contract of sale. In a contract to
sell, there being no previous sale of the property, a third person buying such property despite the
fulfilment of the suspensive condition such as the full payment of the purchase price, for instance, cannot
be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property.

Facts:

The property subject of this case is a parcel of land located in SitioTagpos, Barangay Tayuman,
Binangonan, Rizal, known as Lot 18089.

Petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque) and the original owners of
the then unregistered Lot 18089 – namely, Velia R. Rivero (Rivero), Magdalena Aguilar, Angela
Gonzales, Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa, Leonor R. Topacio, and Augusto
Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of Real Property (1977 Deed of Conditional
Sale) over a 1,231-sq. m. portion of Lot 18089 (subject portion) for a consideration of P30,775.00. The
parties agreed that Sps. Roque shall make an initial payment of P15, 387.50 upon signing, while the
remaining balance of the purchase price shall be payable upon the registration of Lot 18089, as well as the
segregation and the concomitant issuance of a separate title over the subject portion in their names.

FructuosoSabug, Jr. (Sabug, Jr.), former Treasurer of the National Council of Churches in the Philippines
(NCCP), applied for a free patent over the entire Lot 18089 and was eventually issued Original Certificate
of Title (OCT) No. M-5955 in his name. On June 24, 1993, Sabug, Jr. and Rivero et al, executed a Joint
Affidavit9 (1993 Joint Affidavit), acknowledging that the subject portion belongs to Sps. Roque and
expressed their willingness to segregate the same from the entire area of Lot 18089.

11
However, Sabug, Jr., through a Deed of Absolute Sale 10 (1999 Deed of Absolute Sale), sold Lot 18089 to
one Ma. Pamela P. Aguado (Aguado) for P2,500,000.00, who, in turn, caused the cancellation of OCT
No. M-5955 and the issuance of Transfer Certificate of Title (TCT) No.M-96692 in her name.

Thereafter, Aguado obtained an P8, 000,000.00 loan from the Land Bank of the Philippines (Land Bank)
secured by a mortgage over Lot 18089. She defaulted and  Land Bank commenced extra-judicial
foreclosure proceedings and eventually tendered the highest bid in the auction sale. Upon Aguado’s
failure to redeem the subject property, Land Bank consolidated its ownership, and TCT No. M-
115895was issued in its name.

Sps. Roque filed a complaint 15 for reconveyance, annulment of sale, deed of real estate mortgage,
foreclosure, and certificate of sale, and damages against Aguado, Sabug, Jr., NCCP, Land Bank, the
Register of Deeds of Morong, Rizal, and Sheriff Cecilio U. Pulan, seeking to be declared as the true
owners of the subject portion which had been erroneously included in the sale between Aguado and
Sabug, Jr., and, subsequently, the mortgage to Land Bank, both covering Lot 18089 in its entirety.

The RTC Ruling: the RTC rendered a Decision dated July 8, 2008, dismissing the complaints of Sps.
Roque and NCCP.With respect to Sps. Roque’s complaint, the RTC found that the latter failed to
establish their ownership over the subject portion.

The CA Ruling: It affirmed the foregoing RTC findings in a Decision

Issues:

1. Whether or not the CA erred in not ordering the reconveyance of the subject portion in Sps.
Roque’s favor.

2. Whether or not the 1977 Deed of Conditional Sale was a contract of sale or contract to sell.

Ruling:

1. No, the essence of an action for reconveyance is to seek the transfer of the property which was
wrongfully or erroneously registered in another person’s name to its rightful owner or to one with a better
right. Thus, it is incumbent upon the aggrieved party to show that he has a legal claim on the property
superior to that of the registered owner and that the property has not yet passed to the hands of an
innocent purchaser for value.

2. The Court finds that the 1977 Deed of Conditional Sale is actually in the nature of a contract to sell and
not one of sale contrary to Sps. Roque’s belief.In this relation, it has been consistently ruled that where
the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of
the purchase price, the contract is only a contract to sell even if their agreement is denominated as a Deed
of Conditional Sale. In a contract to sell, ownership is retained by the vendor and is not to pass to the
vendee until full payment of the purchase price.

Here, it is undisputed that Sps. Roquehave not paid the final installment of the purchase price.As such, the
condition which would have triggered the parties’ obligation to enter into and thereby perfect a contract
of sale in order to effectively transfer the ownership of the subject portion from the sellers (i.e., Rivero et
al.) to the buyers (Sps. Roque) cannot be deemed to have been fulfilled. Consequently, the latter cannot
validly claim ownership over the subject portion even if they had made an initial payment and even took
possession of the same.

BIGNA Y EX-IM PHILIPPINES, INC., Petitioner, vs. UNION BANK OF THE

PHILIPPINES, Respondent.
G.R. No. 171590 February 12, 2014
x-----------------------x
UNION BANK OF THE PHILIPPINES, Petitioner, vs. BIGNAY EX-IM PHILIPPINES,
INC., Respondent.
G.R. No.171598

12
 By: Maria Monica A. Gula
Doctrine:

Eviction shall take place whenever by a final judgment based on a right prior to the sale or an
act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. In
case eviction occurs, the vendee shall have the right to demand of the vendor, among others, the return of
the value which the thing sold had at the time of the eviction, be it greater or less than the price of the
sale; the expenses of the contract, if the vendee has paid them; and the damages and interests, and
ornamental expenses, if the sale was made in bad faith. 

Facts:

In 1984, Alfonso de Leon (Alfonso) mortgaged in favor of Union Bank of the Philippines (Union
Bank) real property situated at Esteban Abada, Loyola Heights, Quezon City, which was registered in his
and his wife Rosario’s name and covered by Transfer Certificate of Title (TCT) No. 286130 (TCT
286130).

The property was foreclosed and sold at auction to Union Bank. After the redemption period
expired, the bank consolidated its ownership, whereupon TCT 362405 was issued in its name in 1987.

In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702 for annulment
of the 1984 mortgage, claiming that Alfonso mortgaged the property without her consent, and for
reconveyance.

In a September 6, 1989 Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay), through its

President, Milagros Ong Siy (Siy), offered to purchase the property.

On December 20, 1989, a Deed of Absolute Sale was executed by and between Union Bank and
Bignay whereby the property was conveyed to Bignay for P4 million. The deed of sale was executed by
the parties through Bignay’s Siy and Union Bank’s Senior Vice President Anthony Robles (Robles). One
of the terms of the deed of sale is quoted below:

Section 1. The VENDEE hereby recognizes that the Parcel/s of Land with improvements
thereon is acquired through foreclosure proceedings and agrees to buy the Parcel/s of Land
with improvement[s] thereon in its present state and condition. The VENDOR therefore does
not make any x x x representations or warranty with respect to the Parcel/s of Land but that it
will defend its title to the Parcel/s of Land with improvement[s] thereon against the claims of
any person whomsoever.

On December 27, 1989, Bignay mortgaged the property to Union Bank, presumably to secure a
loan obtained from the latter.

On December 12, 1991, a Decision was rendered in Civil Case No. Q-52702, finding that defendant
Alfonso de Leon, Jr. had alone executed the mortgage on their conjugal property with T.C.T. No. 286130
upon a forged signature of his wife plaintiff Rosario T. de Leon.

Union Bank appealed the above Decision with the CA. It likewise sought a new trial of the case,
which the trial court denied. The CA appeal was dismissed for failure to file appellant’s brief; the ensuing
Petition for Review with this Court was similarly denied for late filing and payment of legal fees.

Union Bank next filed with the CA an action to annul the trial court’s December 12, 1991
judgment. In a September 9, 1993 Resolution, however, the CA again dismissed the Petition for failure to
comply with Supreme Court Circular No. 28-91. The bank’s Motion for Reconsideration was once more
denied.

This time, Bignay filed a Petition for annulment of the December 12, 1991 Decision, docketed as
CA-G.R. SP No. 33901. In a July 15, 1994 Decision, the CA dismissed the Petition. Bignay’s resultant
Petition for Certiorari with this Court suffered the same fate.

Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-52702, Bignay was
evicted from the property; by then, it had demolished the existing structure on the lot and begun
construction of a new building.

13
 On March 21, 1994, Bignay filed Civil Case No. 94-1129 for breach of warranty against eviction
under Articles 1547 and 1548 of the Civil Code, with damages, against Union Bank and Robles.

The trial court found that Union Bank’s Senior Vice President, Robles, maintained a secret alliance
and relationship of trust with Bignay’s Siy, whereby Robles would look out for desirable properties from
the bank’s asset inventory, recommend them to Siy, then facilitate the negotiation, sale and
documentation for her. In return, he would receive a 3% commission from Siy, or some other benefit; in
fact, Siy made him an incorporator and director of one of her corporations, IGAPC. The trial court
believed Siy’s claim that she signed papers in blank and left them with Robles in order to facilitate the
negotiation and purchase of bank properties which they both considered to be cheap and viable. In this
connection, the trial court concluded that it was Robles – and not Siy – who prepared the September 6,
1989 letter-proposal on a piece of paper signed in blank by Siy, and that even though the pending Civil
Case No. Q-52702 was mentioned in the letter-proposal, Siy in fact had no knowledge thereof. This is
proved by the fact that she proceeded to construct a costly building on the property; if Siy knew of the
pending Civil Case No. Q-52702, it is highly doubtful that she would do so.

The trial court thus declared that Union Bank, through Robles, acted in bad faith in selling the
subject property to Bignay; for this reason, the stipulation in the December 20, 1989 deed of sale limiting
Union Bank’s liability in case of eviction cannot apply, because under Article 1553 of the Civil Code,
"[a]ny stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he
acted in bad faith." Moreover, it held that in its handling of Civil Case No. Q-52702, the bank was guilty
of gross negligence amounting to bad faith, which thus contravened its undertaking in the deed of sale to
"defend its title to the Parcel/s of Land with improvement thereon against the claims of any person
whatsoever."

Union Bank took the trial court’s March 21, 2000 Decision to the CA on appeal. The CA partly
granted the appeal. On February 10, 2006, the CA issued the second assailed Resolution denying the
parties’ respective motions for reconsideration.

Thus, the present Petitions were filed. G.R. No. 171590 was initiated by Bignay, while G.R. No.
171598 was filed by Union Bank. In a June 21, 2006 Resolution of the Court, both Petitions were ordered
consolidated.

Issue:

Whether or not Union Bank is liable for its breach of warranty resulting in the buyer’s eviction
from the property.

Ruling:

Yes. The Court finds for Bignay.

The Court is convinced – from an examination of the evidence and by the concurring opinions of
the courts below – that Bignay purchased the property without knowledge of the pending Civil Case No.
Q-52702. Union Bank is therefore answerable for its express undertaking under the December 20, 1989
deed of sale to "defend its title to the Parcel/s of Land with improvement thereon against the claims of any
person whatsoever." By this warranty, Union Bank represented to Bignay that it had title to the property,
and by assuming the obligation to defend such title, it promised to do so at least in good faith and with
sufficient prudence, if not to the best of its abilities.

The record reveals, however, that Union Bank was grossly negligent in the handling and
prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was
dismissed by the CA for failure to file the required appellant’s brief. Next, the ensuing Petition for
Review on Certiorari filed with this Court was likewise denied due to late filing and payment of legal
fees. Finally, the bank sought the annulment of the December 12, 1991 judgment, yet again, the CA
dismissed the petition for its failure to comply with Supreme Court Circular No. 28-91. As a result, the
December 12, 1991 Decision became final and executory, and Bignay was evicted from the property.
Such negligence in the handling of the case is far from coincidental; it is decidedly glaring, and amounts
to bad faith. "[N]egligence may be occasionally so gross as to amount to malice [or bad faith]."  Indeed, in
culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground for
the recovery of damages by the injured party.

14
 Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased.  In case
eviction occurs, the vendee shall have the right to demand of the vendor, among others, the return of the
value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale;
the expenses of the contract, if the vendee has paid them; and the damages and interests, and ornamental
expenses, if the sale was made in bad faith. There appears to be no dispute as to the value of the building
constructed on the property by Bignay; the only issue raised by Union Bank in these Petitions is the
propriety of the award of damages, and the amount thereof is not in issue. The award in favor of Bignay
of P4 million, or the consideration or cost of the property, andP20 million – the value of the building it
erected thereon – is no longer in issue and is thus in order.

The Petition in G.R. No. 171590 is granted while the Petition in G.R. No. 171598 is denied.

PARTNERSHIP

HEIRS OF TAN ENG KEE vs. COURT OF APPEALS and BENGUET LUMBER COMPANY,
represented by its President TAN ENG LAY
G.R. No. 126881; October 3, 2000
By: Ziazel C. Andales

Doctrine:

The best evidence of the existence of a partnership is the contract of partnership itself, or the articles of
partnership.Co-ownership or co-possession is not an indicium of the existence of a partnership.

The essence of a partnership is that the partners share in the profits and losses. Each has the right to
demand an accounting as long as the partnership exists. We have allowed a scenario wherein if excellent
relations exist among the partners at the start of the business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly
plausible. But in the situation in the case at bar, the deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary care of his concerns.

Facts:

Following the death of Tan Eng Kee, Matilde Abubo, the common-law spouse of the decedent, joined by
their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent’s brother TAN ENG LAY. The
complaint in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of
the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.

The complaint principally alleged that after the Second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their enterprise Benguet Lumber which they
jointly managed until Tan Eng Kee’s death. Petitioners herein averred that the business prospered due to
the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership Benguet Lumber into a corporation called Benguet
Lumber Company. The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the
net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City declared. Among others, that Benguet Lumber is a joint
adventure which is akin to a particular partnership.

15
Private respondent sought relief before the Court of Appeals which rendered the assailed decision
reversing the judgment of the trial court. Petitioner’s motion for reconsideration was denied, hence, the
present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case against Tan Eng Lay and Wilborn Tan
for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits
4 to 4-U offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng
Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of
Tan Eng Kee. However,such was dismissed for insufficiency of evidence.

Issues:

Whether or not Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.

Ruling:

A contract of partnership is defined by law as one where:

xxx two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the
profits among themselves.

The agreement need not be formally reduced into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2)
when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument is
required. An inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is contributed to the
partnership.

The best evidence of the existence of a partnership would have been the contract of partnership itself, or
the articles of partnership but there is none. The alleged partnership, though, was never formally
organized. Thus, we are asked to determine whether a partnership existed based purely on circumstantial
evidence.

A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial
court. The evidence presented by petitioners falls short of the quantum of proof required to establish a
partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could
have expounded on the precise nature of the business relationship between them.

In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies
to that effect of petitioners’ witnesses is directly controverted by Tan Eng Lay. It should be noted that it is
not with the number of witnesses wherein preponderance lies; the quality of their testimonies is to be
considered. None of petitioners’ witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo. He
stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to
get 80 pieces of G.I. sheets supposedly owned by both brothers. Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between Peralta and his brother. Tan Eng Lay
consistently testified that he had his business and his brother had his, that it was only later on that his said
brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in
existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an accounting as long as the partnership

16
exists. We have allowed a scenario wherein if excellent relations exist among the partners at the start of
the business and all the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible. But in the situation in the case at bar,
the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of
his concerns.

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tan Eng Lay.

This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls purporting
to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The
authenticity of these documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed
for insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums as wages
of an employee.

In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in
payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the afore-quoted legal provision, we conclude that Tan Eng Kee was only an employee, not
a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one,
so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber
Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between themselves, which is one of the essential features of
a partnership.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA,

respondent
G.R. No. 143340  August 15, 2001
By: Dalisay B. Isidro

Topic: Partnership entered into under aVerbal Contract

Doctrine:

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A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall necessary. Hence, based on the intention of
the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract
of partnership may arise. The essential facts that must be proven to show that a partnership was agreed
upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.

Facts:

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of
Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto
allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the intention that the profits would be equally divided
between them.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of
Shellite, without respondent's consent. Despite respondent's repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting
to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to
evade respondent's demands, she disbursed out of the partnership funds the amount of P200,000.00 and
partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latter's share in the partnership, with a promise that the
former would make the complete inventory and winding up of the properties of the business
establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to
account, and continued to benefit from the assets and income of Shellite to the damage and prejudice of
respondent.

Petitioners filed their Answer with Compulsory Counter-claims, contending that they are not liable for
partnership shares, unreceived income/profits, interests, damages and attorney's fees; that respondent does
not have a cause of action against them; and that the trial court has no jurisdiction over the nature of the
action, the SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorney's fees and expenses of litigation.

Petitioners maintain that said partnership that had initial capital of P200,000.00 should have been
registered with the Securities and Exchange Commission (SEC) since registration is mandated by the
Civil Code.

Petitioners invoke further the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of
the Rules of Court.

Issue:

Whether or not partnership may be proven to exist,three (3) years after Jacinto’s (the managing partner’s)
death absent a written contract between the parties and the lack of registration of any contract of
partnership with the Securities and Exchange Commission (SEC).

Held:

Yes. A partnership may be constituted in any form, except where immovable property of real rights are
contributed thereto, in which case a public instrument shall necessary. Hence, based on the intention of
the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract
of partnership may arise.

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The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying
by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage
of giving his own uncontradicted and unexplained account of the transaction.

Petitioners filed a compulsory counterclaim against respondents in their answer before the trial court, and
with the filing of their counterclaim, petitioners themselves effectively removed this case from the ambit
of the "Dead Man's Statute". Well entrenched is the rule that when it is the executor or administrator or
representatives of the estates that sets up the counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the counterclaim. Moreover, as defendant in the
counterclaim, respondent is not disqualified from testifying as to matters of facts occurring before the
death of the deceased, said action not having been brought against but by the estate or representatives of
the deceased.

The action for accounting filed by respondents three (3) years after Jacinto's death was well within the
prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6)
years.

Article 1768 of the Civil Code explicitly provides that the partnership retains its juridical personality even
if it fails to register with the Securities and Exchange Commission (SEC). The failure to register the
contract of partnership does not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to third parties, and it can be
assumed that the members themselves knew of the contents of their contract. In the case at bar, non-
compliance with this directory provision of the law will not invalidate the partnership considering that the
totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question.

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES

REYES, respondents.
[G.R. No. 135813. October 25, 2001]
By: Bea Marie I. Jaen

Doctrine:

By the contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves.  The Articles of Agreement stipulated that the signatories shall share the profits of
the business in a 70-15-15 manner, with petitioner getting the lions share. This stipulation
clearly proved the establishment of a partnership.

Facts:

In June 1986, Fernando Santos, Nieves Reyes and Melton Zabat orally agreed to form a
partnership – a lending business. Santos contributed 70% (as financier) while Reyes and Zabat
shared 30% (as industrial partners). Later, Reyes introduced Cesar Gragera whom they would
provide loans to Gragera’s corporation particularly its employees. In return Gragera shall have a
commission based on the loan payments. The partners decided on August 1986 to have a
written agreement but they found out that Zabat engaged in a competitor venture thus expelled
him. The two had Arsenio Reyes (husband of Nieves) replaced Zabat. However, Santos accused
the Spouses of not remitting the loans payments. He argued that the couple were only his
employees and there was a special arrangement between him and Gragera. The trial court and
the Court of Appeals ruled against Santos.

Issue: Whether or not there was a partnership formed between Santos and the Spouses Reyes

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Held: YES. The original partnership with Zabat continued even after the expulsion of the latter
from the partnership because there was no intent to dissolve the (partnership) relationship. ”

[Respondents] were industrial partners of [petitioner]. . . . Nieves herself provided the initiative
in the lending activities with Monte Maria. In consonance with the agreement between
appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to
the common fund with the intention of sharing in the profits of the partnership. [Respondents]
provided services without which the partnership would not have [had] the wherewithal to carry
on the purpose for which it was organized and as such [were] considered industrial partners
(Evangelista v. Abad Santos, 51 SCRA 416 [1973]).

“While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to dissolution. Instead,
they invited Arsenio to participate as a partner in their operations. There was therefore, no
intent to dissolve the earlier partnership. The partnership between [petitioner,] Nieves and
Arsenio simply took over and continued the business of the former partnership with Zabat, one
of the incidents of which was the lending operations with Monte Maria.

By the contract of partnership, two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves.  The Articles of Agreement stipulated that the signatories shall share the profits of
the business in a 70-15-15 manner, with petitioner getting the lions share. This stipulation
clearly proved the establishment of a partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the
fact that it was formalized only after the Memorandum of Agreement had been signed by
petitioner and Gragera. 

ZENAIDA G. MENDOZA, Petitioner, vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUÑOZ, NUEVA ECIJA), Respondents.
G.R. No. 175885     February 13, 2009
By: Rebecca L. Jordan

Doctrine:

Under the Civil Code, every partner is an agent of the PARTNERHSHIP for the purpose of its
business;18 each one may separately execute all acts of administration, unless a specification of their
respective duties has been agreed upon, or else it is stipulated that any one of them shall not act without
the consent of all the others.

Facts:

PAULE is the proprietor of E.M. Paule Construction and Trading (EMPCT). PAULE executed a
special power of attorney (SPA) authorizing MENDOZA to participate in the pre-qualification and
bidding of a National Irrigation Administration (NIA) project and to represent him in all transactions
related thereto.

EMPCT, through MENDOZA, participated in the bidding of the NIA-Casecnan Multi-Purpose

Irrigation and Power Project (NIA-CMIPP) and was awarded Packages A-10 and B-11

MENDOZA and CRUZ signed two Job Orders/Agreements 5 for the lease of the latter’s heavy
equipment (dump trucks for hauling purposes) to EMPCT.

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 PAULE revoked6 the SPA of MENDOZA; consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ demanded payment of the rentals, but, could not be paid for the rent
of the equipment.

MENDOZA alleged in her cross-claim that because of PAULE’s "whimsical revocation" of the
SPA, she was barred from collecting payments from NIA, thus resulting in her inability to fund her
checks which she had issued to suppliers of materials, equipment and labor for the project..

The trial court rendered its decision in favor of the plaintiff and in holding PAULE liable, the
trial court found that MENDOZA was duly constituted as EMPCT’s agent for purposes of the NIA
project and that MENDOZA validly contracted with CRUZ for the rental of heavy equipment that was to
be used therefor. It found unavailing PAULE’s assertion that MENDOZA merely borrowed and used his
contractor’s license in exchange for a consideration of 3% of the aggregate amount of the project. The
trial court held that through the SPAs he executed, PAULE clothed MENDOZA with apparent authority
and held her out to the public as his agent; as principal, PAULE must comply with the obligations which
MENDOZA contracted within the scope of her authority and for his benefit.

MENDOZA, for her part, claims that she has a right to be heard on her cause of action as stated in
her cross-claim against PAULE; that the trial court’s failure to resolve the cross-claim was a violation of
her constitutional right to be apprised of the facts or the law on which the trial court’s decision is based;
that PAULE may not revoke her appointment as attorney-in-fact for and in behalf of EMPCT because, as
manager of their PARTNERHSHIP in the NIA project, she was obligated to collect from NIA the funds
to be used for the payment of suppliers and contractors with whom she had earlier contracted for labor,
materials and equipment.

PAULE, on the other hand, argues in his Comment that MENDOZA’s authority under the SPAs
was for the limited purpose of securing the NIA project; that MENDOZA was not authorized to contract
with other parties with regard to the works and services required for the project, such as CRUZ’s hauling
services; that MENDOZA acted beyond her authority in contracting with CRUZ, and PAULE, as
principal, should not be made civilly liable to CRUZ under the SPAs; and that MENDOZA has no cause
of action against him for actual and moral damages since the latter exceeded her authority under the
agency.

Issue:

Whether or not a partner can be held civilly liable to his partner for revoking the SPA

Held: YES.

PAULE should be made civilly liable for abandoning the PARTNERHSHIP, leaving
MENDOZA to fend for her own, and for unduly revoking her authority to collect payments from NIA,
payments which were necessary for the settlement of obligations contracted for and already owing to
laborers and suppliers of materials and equipment like CRUZ, not to mention the agreed profits to be
derived from the venture that are owing to MENDOZA by reason of their PARTNERHSHIP agreement.

Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had entered into a
PARTNERHSHIP in regard to the NIA project. PAULE‘s contribution thereto is his contractor’s license
and expertise, while MENDOZA would provide and secure the needed funds for labor, materials and
services; deal with the suppliers and sub-contractors; and in general and together with PAULE, oversee
the effective implementation of the project. For this, PAULE would receive as his share three  per
cent (3%) of the project cost while the rest of the profits shall go to MENDOZA. PAULE admits to this
arrangement in all his pleadings.

Although the SPAs limit MENDOZA’s authority to such acts as representing EMPCT in its
business transactions with NIA, participating in the bidding of the project, receiving and collecting
payment in behalf of EMPCT, and performing other acts in furtherance thereof, the evidence shows that
when MENDOZA and CRUZ met and discussed (at the EMPCT office in Bayuga, Muñoz, Nueva Ecija)
the lease of the latter’s heavy equipment for use in the project, PAULE was present and interposed no
objection to MENDOZA’s actuations. In his pleadings, PAULE does not even deny this. Quite the
contrary, MENDOZA’s actions were in accord with what she and PAULE originally agreed upon, as to
division of labor and delineation of functions within their PARTNERHSHIP. Under the Civil Code,

21
every partner is an agent of the PARTNERHSHIP for the purpose of its business;18 each one may
separately execute all acts of administration, unless a specification of their respective duties has been
agreed upon, or else it is stipulated that any one of them shall not act without the consent of all the
others.19 At any rate, PAULE does not have any valid cause for opposition because his only role in the
PARTNERHSHIP is to provide his contractor’s license and expertise, while the sourcing of funds,
materials, labor and equipment has been relegated to MENDOZA.

There was no valid reason for PAULE to revoke MENDOZA’s SPAs. Since MENDOZA took
care of the funding and sourcing of labor, materials and equipment for the project, it is only logical that
she controls the finances, which means that the SPAs issued to her were necessary for the proper
performance of her role in the PARTNERHSHIP, and to discharge the obligations she had already
contracted prior to revocation. Without the SPAs, she could not collect from NIA, because as far as it is
concerned, EMPCT – and not the PAULE-MENDOZA PARTNERHSHIP – is the entity it had
contracted with. Without these payments from NIA, there would be no source of funds to complete the
project and to pay off obligations incurred. As MENDOZA correctly argues, an agency cannot be revoked
if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or
if a partner is appointed manager of a PARTNERHSHIP in the contract of PARTNERHSHIP and his
removal from the management is unjustifiable.

Antonia Torres vs. Court of Appeals and Manuel Torres

G.R. No. 134559 December 9, 1999
By: Margaret B. Labella

Facts:

Antonia Torres and Emeteria Baring entered into a joint venture agreement with Manuel Torres.
Under the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a parcel of land,
the sisters received no cash payment from Manuel but the promise of profits (60% for the sisters and 40%
for Manuel) – said parcel of land is to be developed as a subdivision.

Manuel then had the title of the land transferred in his name and he subsequently mortgaged the
property. He used the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also
contracted an engineering firm for the building of housing units. But due to adverse claims in the land,
prospective buyers were scared off and the subdivision project eventually failed.

The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of
the property, which according to the sisters, is what’s due them as per the contract.

The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no partnership
between them and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: 

Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement
whereby they agreed to contribute property (their land) which was to be developed as a subdivision.
While on the other hand, though Manuel did not contribute capital, he is an industrial partner for his
contribution for general expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage (60-40). Clearly, the contract manifested the intention of
the parties to form a partnership. Further still, the sisters cannot invoke their right to the 60% value of the
property and at the same time deny the same contract which entitles them to it.

22
 At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to
Manuel (the sisters on their appeal did not show evidence as to Manuel’s fault in the failure of the
partnership). The sisters must then bear their loss (which is 60%). Manuel does not bear the loss of the
other 40% because as an industrial partner he is exempt from losses.

FEDERICO JARANTILLA, JR. vs. ANTONIETA JARANTILLA,

G.R. No. 154486, December 1, 2010
By: Marje L. Legaspo

Doctrine:

There is a co-ownership when an undivided thing or right belongs to different persons. It is a

partnership when two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves. 

It is worthy to note that those who agree to form a co-ownership share or do not share any
profits made by the use of the property held in common does not convert their venture into a partnership.
Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only means that, aside from
the circumstance of profit, the presence of other elements constituting partnership is necessary, such as
the clear intent to form a partnership, the existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others.

Facts:

Spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta. Petitioner is the grandchild of the late Jarantilla
spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili. Petitioner was one of the defendants
in the complaint before the RTC while Antonieta Jarantilla, his aunt, was the plaintiff therein.

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of
their deceased parents. With the exception of the real property adjudicated to Pacita Jarantilla, the heirs
also agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of
Rafael and Antonieta Jarantilla.

In the same year, Rosita Jarantilla and her husband entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other by way of
financial support to any commercial and agricultural activity on a joint business arrangement. This
business relationship proved to be successful as they were able to establish a manufacturing and trading
business, acquire real properties, and construct buildings, among other things. This partnership ended in
1973 when the parties, in an "Agreement," voluntarily agreed to completely dissolve their "joint business
relationship/arrangement."

The spouses Buenaventura Remotigue executed a document wherein they acknowledged that
while registered only in Buenaventura Remotigue’s name, they were not the only owners of the capital of
the businesses and they stipulated the participating capital of their co-owners as of the year 1952
Antonieta Jarantilla and Federico Jarantilla, Jr.

The accounting of the assets and income of the co-ownership, for its partition and the delivery of
share corresponding to eight percent (8%) are then disputed. The petitioner denied having formed a
partnership with respondent in 1946 as she was in no position to do so as she was still in school at that
time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred that
while she may have helped in the businesses, she was paid her due salary. They did not deny the existence
and validity of the "Acknowledgement of Participating Capital" and in fact used this as evidence to
support their claim that Antonieta’s 8% share was limited to the businesses enumerated therein. The

23
petitioner denied using the partnership’s income to purchase the subject real properties and said that the
certificates of title should be binding on her.

The CA ruled that Antonieta Jarantilla was not part of the partnership formed in 1946, and that
her 8% share was limited to the businesses enumerated in the Acknowledgement of Participating Capital.

Issue:

Whether or not the there was a partnership or a mere co-ownership in contributing money or
property to a common fund.

Ruling:

The court ruled that there was a mere co-ownership.

Both the petitioner and Antonieta Jarantilla characterize their relationship as a co-ownership, but
in the same breath, assert that a verbal partnership was formed in 1946 and was affirmed in the 1957
Acknowledgement of Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons. It is a

partnership when two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves. 

It is worthy to note that those who agree to form a co-ownership share or do not share any profits
made by the use of the property held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property. This only means that, aside from the
circumstance of profit, the presence of other elements constituting partnership is necessary, such as the
clear intent to form a partnership, the existence of a juridical personality different from that of the
individual partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy
certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to their
respective contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does
an agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the other not
being entitled to share in plaintiff’s commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.

Josefina P. Realubit vs. Prosencio D. Jaso and Eden G. Jaso,

G.R. No. 178782, September 21, 2011
By: Ma. Noelle A. Maico

DOCTRINE: Generally understood to mean an organization formed for some temporary purpose, a
joint venture is likened to a particular partnership or one which “has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of a profession or vocation.” The rule is
settled that joint ventures are governed by the law on partnerships which are, in turn, based on mutual

24
agency or delectus personae. Insofar as a partner’s conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not
itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere in
the management or administration of the partnership business or affairs, or to require
any information or account of partnership transactions, or to inspect the partnership
books; but it merely entitles the assignee to receive in accordance with his contracts the
profits to which the assigning partners would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself of the usual
remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignor’s interest and may require an account from the date only of the last account
agreed to by all the partners.

FACTS:

Josefina Realubit (Petitioner) entered into a Joint Venture Agreement with Francis Eric Amaury
Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With Josefina as
the industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive
40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine
which was purchased for the business. For and in consideration of the sum of P500,000.00, however,
Biondo subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights and
interests in the business in favor of Eden Jaso, the wife of Prosencio Jaso. With Biondo’s eventual
departure from the country, the Spouses Jaso (Respondents) caused their lawyer to send Petitioner a letter
apprising her of their acquisition of said Frenchman’s share in the business and formally demanding an
accounting and inventory thereof as well as the remittance of their portion of its profits.

Faulting Petitioner with unjustified failure to heed their demand, Respondents commenced the
instant suit against Petitioner, her husband, Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of assets and properties, dissolution of the
joint venture, appointment of a receiver and damages. The said complaint alleged, among other matters
that, that aside from appropriating for themselves the income of the business, the Spouses Realubit have
fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies.

The Spouses Realubit, in turn, averred that Biondo, who had left the country in May 1997, could
not have executed the Deed of Assignment which bears a signature markedly different from that which he
affixed on their Joint Venture Agreement. The refusal to given in toRespondents’ demand was in view of
the dubious circumstances surrounding their acquisition of Biondo’s share in the business which had
already stopped operations. Further, the Spouses Realubit claimed that it was their own tube ice trading
business which had been moved to another location that the Respondents mistook for the ice
manufacturing business established in partnership with Biondo.

 The trial court ordered the Spouses Realubit to submit to Respondents a complete accounting and
inventory of the assets and liabilities of the joint venture, allow them access to the books and accounting
records and to deliver their share in the profits. On appeal, the Court of Appeals (CA) set aside the trial
court’s decision. The CA held that absent showing of Petitioner Josefina’s knowledge and consent to the
transfer of Biondo’s share, Eden Jaso cannot be considered as a partner in the business, pursuant to
Article 1813 of the Civil Code of the Philippines. It ruled that while entitled to Biondo’s share in the
profits of the business, Eden cannot, however, interfere with the management of the partnership, require
information or account of its transactions and inspect its books. Respondents’ motion for reconsideration
of the foregoing decision was denied for lack of merit. Hence, this petition.

25
ISSUES:

a) Whether or not a joint venture is a contract of partnership.

b)  Whether or not Respondent Eden Jaso acquired the title of being a partner based on the Deed
of Assignment.

HELD:

a) Yes. Generally understood to mean an organization formed for some temporary purpose, a joint
venture is likened to a particular partnership or one which has for its object determinate things, their use
or fruits, or a specific undertaking, or the exercise of a profession or vocation.  The rule is settled that
joint ventures are governed by the law on partnerships which are, in turn, based on mutual agency
or delectus personae. Insofar as a partner’s conveyance of the entirety of his interest in the partnership is
concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not
itself dissolve the partnership, or, as against the other partners in the absence of
agreement, entitle the assignee, during the continuance of the partnership, to interfere in
the management or administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the partnership books;
but it merely entitles the assignee to receive in accordance with his contracts the profits to
which the assigning partners would otherwise be entitled. However, in case of fraud in
the management of the partnership, the assignee may avail himself of the usual remedies.
 
In the case of a dissolution of the partnership, the assignee is entitled to receive his
assignors interest and may require an account from the date only of the last account
agreed to by all the partners.

b) No, it is evident that the transfer by a partner of his partnership interest does not make the assignee of
such interest a partner of the firm, nor entitle the assignee to interfere in the management of the
partnership business or to receive anything except the assignees profits. The assignment does not purport
to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate
residue as the assignor may become entitled to receive by virtue of his proportionate interest in the
capital. Since a partner’s interest in the partnership includes his share in the profits, the CA committed no
reversible error in ruling that Respondents are entitled to Biondo’s share in the profits, despite Petitioner’s
lack of consent to the assignment of said interest in the joint venture. Although Eden did not, moreover,
become a partner as a consequence of the assignment and/or acquire the right to require an accounting of
the partnership business, the CA correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil
Code.

HEIRS OF JOSE LIM vs. JULIET VILLA LIM,

[ G.R. No. 172690, March 3, 2010 ]
By: Joreyna Mae T. Melicor

Doctrine:
A partnership exists when two or more persons agree to place their money, effects, labor, and
skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of
the profits and losses among them. A contract of partnership is defined by the Civil Code as one where
two or more persons bind themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.

26
Facts:
Petitioners are the heirs of the late Jose Lim. They filed a Complaint for Partition, Accounting
and Damages against respondent Juliet Villa Lim, widow of the late Elfledo Lim, who was the eldest son
of Jose and wife Cresencia.

Jose Lim together with his friends allegedly formed a partnership to engage in the trucking
business with an initial contribution of P50,000.00 each sometime in 1980, and purchased a truck to be
used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this trucking
business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners
agreed to continue the business under the management of Elfledo. The shares in the partnership profits
and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority
for Elfledo to use, purchase or acquire properties using said funds. Although the petitioners claim that
Elfledo was not a partner or investor in the business.

Elfledo died, leaving respondent as his sole surviving heir who claimed that Elfledo was a
partner.

Petitioners claimed that respondent took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent and approval.

RTC ordered partition of the properties equally between the parties.

CA reversed RTC's ruling dismissing the case for lack of merit.

Issue:
Whether or not all the properties acquired by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership

Ruling:
No.

Elfledo was not just a hired help but one of the partners in the trucking business, active and
visible in the running of its affairs from day one until this ceased operations upon his demise. The extent
of his control, administration and management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary or other compensation by the partners,
are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the
other partners only contributed in the initial capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredo's efforts and hard work that the partnership was able to acquire more
trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as
the bookkeeper sans salary.

A partnership exists when two or more persons agree to place their money, effects, labor, and
skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of
the profits and losses among them. A contract of partnership is defined by the Civil Code as one where
two or more persons bind themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the profits among themselves.

It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and
not Elfledo who was the partner, then upon his death the partnership should have been dissolved and its
assets liquidated. On the contrary, these were not done but instead its operation continued under the helm
of Elfledo and without any participation from the heirs of Jose Lim.

27
 ARSENIO MENDIOLA, petitioner, vs. COURT OF APPEALS , NATIONAL LABOR
RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or
CELLMARK AB, respondents.
G.R. No. 159333, July 31, 2006
(CORPORATION AS PARTNER)
By: Ellen R. Nalia

DOCTRINE:
Unless authorized by a state or by its charter, a corporation is without capacity or power to enter
into a contract of partnership.
FACTS:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing
under the laws of California, USA. Private respondent Pacfor entered into a “Side Agreement” and
“Revised Operating and Profit Sharing Agreement" on Representative Office known as Pacific Forest
Resources (Phils.), Inc. Petitioner however filed a complaint for illegal dismissal.He argues that he is an
industrial partner of the partnership he formed with private respondent Pacfor, and also an employee of
the partnership. Petitioner insists that an industrial partner may at the same time be an employee of the
partnership, provided there is such an agreement, which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement." The Court of Appeals denied the appeal of petitioner,
holding that "the legal basis of the complaint is not employment but perhaps partnership, co-ownership,
or independent contractorship." Hence, the Labor Code cannot apply.

ISSUE:

Whether or not petitioner is an employee of private respondent Pacfor and no partnership or co-ownership
exists between the parties.

RULING:

Petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership exists
between the parties.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members. The property or stock of
the partnership forms a community of goods, a common fund, in which each party has a proprietary
interest. In fact, the New Civil Code regards a partner as a co-owner of specific partnership property.
Each partner possesses a joint interest in the whole of partnership property. If the relation does not have
this feature, it is not one of partnership. This essential element, the community of interest, or co-
ownership of, or joint interest in partnership property is absent in the relations between petitioner and
private respondent Pacfor. Petitioner is not a part-owner of PacforPhils. William Gleason, private
respondent Pacfor's President established this fact when he said that PacforPhils. is simply a "theoretical
company" for the purpose of dividing the income 50-50. He stressed that petitioner knew of this
arrangement from the very start, having been the one to propose to private respondent Pacfor the setting
up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the
parties in this case, merely shared profits. This alone does not make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express authorization
by statute or charter. This doctrine is based on the following considerations: (1) that the mutual agency
between the partners, whereby the corporation would be bound by the acts of persons who are not its duly
appointed and authorized agents and officers, would be inconsistent with the policy of the law that the
corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement
would improperly allow corporate property to become subject to risks not contemplated by the
stockholders when they originally invested in the corporation. No such authorization has been proved in
the case at bar.

JOSE JUAN TONG, ET AL. vs. GO TIAT KUN, ET AL.

G.R. No. 196023 April 21, 2014
By: Eula J. Parawan

28
CASE DOCTRINE:

The principle that a trustee who puts a certificate of registration in his name cannot repudiate the
trust by relying on the registration is one of the well-known limitations upon a title. A trust, which derives
its strength from the confidence one reposes on another especially between families, does not lose that
character simply because of what appears in a legal document.

FACTS:

The petitioners are nine of the ten children of Spouses Juan Tong (Juan Tong) and Sy Un
(Spouses Juan Tong) and completing the ten children of Spouses Juan Tong is the deceased Luis Juan
Tong, Sr. (Luis, Sr.)

Sometime in 1957, Juan Tong had a meeting with all his children to inform them of his intention
to purchase Lot 998 to be used for the family’s lumber business called "Juan Tong Lumber". However,
since he was a Chinese citizen and was disqualified from acquiring the said lot, the title to the property
will be registered in the name of his eldest son, Luis, Sr., who at that time was already of age and was the
only Filipino citizen among his children.

On December 8, 1978, the single proprietorship of Juan Tong Lumber was incorporated into a
corporation known as the Juan Tong Lumber, Inc. However, Sy Un and Juan Tong both died intestate.
Meanwhile, Luis, Sr. died and the respondents, being his surviving heirs, claimed ownership over Lot 998
by succession, alleging that no trust agreement exists and it was Luis, Sr. who bought Lot 998.

On July 2, 1982, the respondents executed a Deed of Extra-Judicial Settlement of Estate of Luis,
Sr., adjudicating unto themselves Lot 998. After Lot 998 was subdivided, Luis, Jr. sold Lot 998-B to Fine
Rock Development Corporation (FRDC), which in turn sold the same to Visayas Goodwill Credit
Corporation (VGCC). It was only after the petitioners received a letter from VGCC, on August 31, 1995,
that they discovered about the breach of the trust agreement committed by the respondents.

The trial court ruled in favor of the petitioners which were later affirmed by the CA and this
Court on appeal. Then, on February 24, 2001, Go Tiat Kun executed a Deed of Sale of Undivided Interest
over Lot 998-A in favor of her children. Hence, the petitioners filed a case for Nullification of Titles, and
Deeds of Extra-judicial Settlement and Sale and Damages claiming as owners of Lot 998-A.

After trial, the court a quo rendered its judgment in favor of the petitioners, ruling that there was
an implied resulting trust between Juan Tong, Luis, Sr., the petitioners and the respondents, over Lot 998.
The CA rendered the herein assailed decision, which reversed and set aside the trial court’s decision, and
dismissed the complaint for lack of merit.

ISSUE: Whether or not there was an implied resulting trust constituted over Lot 998 when Juan Tong
purchased the property and registered it in the name of Luis, Sr.

HELD:

A review of the records shows an intention to create a trust between the parties. Although Lot 998
was titled in the name of Luis, Sr., the circumstances surrounding the acquisition of the subject property
eloquently speak of the intent that the equitable or beneficial ownership of the property should belong to
the Juan Tong family.

The principle of a resulting trust is based on the equitable doctrine that valuable consideration and
not legal title determines the equitable title or interest and are presumed always to have been
contemplated by the parties. They arise from the nature or circumstances of the consideration involved in
a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to
hold his legal title for the benefit of another. On the other hand, a constructive trust, unlike an express
trust, does not emanate from, or generate a fiduciary relation. Constructive trusts are created by the
construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in equity and good conscience, to hold.

29
 Guided by the foregoing definitions, the Court is in conformity with the finding of the trial court
that an implied resulting trust was created as provided under the first sentence of Article 1448 which is
sometimes referred to as a purchase money resulting trust, the elements of which are: (a) an actual
payment of money, property or services, or an equivalent, constituting valuable consideration; and (b)
such consideration must be furnished by the alleged beneficiary of a resulting trust. Here, the petitioners
have shown that the two elements are present in the instant case. Luis, Sr. was merely a trustee of Juan
Tong and the petitioners in relation to the subject property, and it was Juan Tong who provided the money
for the purchase of Lot 998 but the corresponding transfer certificate of title was placed in the name of
Luis, Sr.

AGENCY
FLORENTINA BAUTISTA-SPILLE represented by her Attorney-in-fact, MANUEL B. FLORES, JR., vs.
NICORP MANAGEMENT AND DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA and
INTERNATIONAL EXCHANGE BANK.
G.R. No. 214057, October 19, 2015
By: Maria Cristina K. Quiron

Doctrine/Principle: The well- established rule is when a sale of a parcel of land or any interest therein
is through an agent, the authority of the latter shall be in writing, otherwise the sale
shall be void.
Facts:

Petitioner Florentina Bautista-Spille is the registered owner of a parcel of land located in Imus City,
Cavite. On June 20, 1996 petitioner and her spouse, Harold E. Spille executed a General Power of
Attorney in favor of his brother, Benjamin Bautista, authorizing the later to administer all her businesses
and properties in the Philippines.

On August 13, 2004, Benjamin and NICORP Management and Development Corporation entered into a
contract to sell pertaining to the land owned by the petitioner for an agreed price on P15,000.00. Nicorp
was to give a downpayment of 20% and the remaining balance in eight (8) months. It was agreed that
the TCT of the subject property would be deposited with the International Exchange Bank and placed in
escrow. Furthermore, Benjamin was required to submit a special power of attorney covering the sale
transaction otherwise , the payment of the balance would be suspended and a penalty of P150,000
every month would be imposed.

When petitioner discovered the sale, she immediately sent demand letters to the respondent informing
them that she was opposing the sale and that Benjamin was not clothed with the authority to enter into
a contract to sell, however the respondents failed and refused to return the title of the subject
property.Consequently, petitioner filed a complaint with the RTC against the respondents.

The RTC rendered judgment declaring the contract to sell null and void. It explained that the general
power of attorney pertained only to acts of administration over the petitioner’s businesses and
properties and did not include authority to sell the subject property. Nicorp was well aware of
Benjamin’s lack of authority to sell as it required the latter to procure the SPA from petitioner and even
imposed a penalty of P150,000 per month if he would be delayed in securing the SPA.

Aggrieved, Nicorp appealed before the CA who reversed the RTC decision, stating that the general
power of attorney executed by the petitioner authorized respondent Benjamin not only to perform acts
of administration but also to perform acts of dominion which included the power to dispose the subject
property. Hence the petition.

Issue: Whether or not Benjamin Bautista was authorized to sell the subject property.

30
The Court’s Ruling:

The well- established rule is when a sale of a parcel of land or any interest therein is through an agent,
the authority of the latter shall be in writing, otherwise the sale shall be void. Articles 1874 and 1878 of
the Civil Code explicitly provide:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.

Art. 1878. Special power of attorney are necessary in the following cases:

(1) x x x

(5) To enter into any contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for valuable consideration;

The Supreme Court cited the case of Cosmic Lumber Corporation v. Court of Appeals, it enunciated:

When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing, otherwise, the sale shall be void. Thus, the authority of
an agent to execute a contract for the sale of real estate must be conferred in writing and must
give him specific authority, either to conduct the general business of the principal or to execute
a binding contract containing terms and conditions which are in the contract that he did
execute. A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly mentions a sale or that includes
a sale as a necessary ingredient of the act mentioned. For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express the powers of the
agent in clear and unmistakable language. When there is any reasonable doubt that the
language to used conveys such power, no such construction shall be given the document.

The court further reiterate, such authority must be conferred in writing and must express the powers of
the agent in clear and unmistakable language in order for the principal to confer the right upon an agent
to sell the property. It is general rule that a power of attorney must strictly construed, and courts will
not infer or presume broad powers from did which do not sufficiently include property or subject under
which the agent is to deal. Thus, when the authority is couched in general terms, without mentioning
any specific power to sell or mortgage or to do other specific acts of strict dominion, then only acts of
administration are deemed conferred.

HEIRS OF THE LATE FELIX BUCTON, namely: NICANORA G. BUCTON, ERLINDA BUCTON-
EBLAMO, AGNES BUCTON-LUGOD, WILMA BUCVTON-YRAY and DON G. BUCTON,
petitioners
vs.
SPOUSES GONZALO and TRINIDAD GO, respondents
G.R. NO. 188395 November 20, 2013

By: Gemma C. Ramirez

DOCTRINE :

Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent and this is especially true where the act of the agent is of unusual nature. If a
person makes no inquiry, he is chargeable with knowledge of the agent’s authority and his ignorance
of that authority will not be any excuse.

31
FACTS

Respondent Gonzalo informed the late Felix Bucton that he bought the latter’s parcel of land
through a certain Belisario who represented himself to be an agent of Felix. Upon inquiry made by Felix,
he learned that his owner’s duplicate Certificate of Title was lost while in the possession of his daughter
and by an unfortunate turn of events, the same fell in the hands of Belisario.
As shown in the annotation at the back of the title, the Sps. Bucton purportedly authorized
Belisario to sell the subject property by virtue of the SPA allegedly signed by the Sps. Bucton on
February 27, 1981.

A complaint for Annulment of the SPA, Deed of Sale, Recovery of Ownership and Possession
was filed against the respondents on February 19, 1996 alleging that since the SPA was spurious, no valid
title was conveyed.

In their Answer, the respondents asserted they were buyers in good faith and for value and
insisted that their title was valid and binding, they argued that under the Torrens system a person dealing
with the registered land may safely rely on the correctness of the Certificate of Title without need of
further inquiry.

RTC found the complaint barred by laches and prescription. On appeal, the foregoing decision
was affirmed finding that the evidence adduced by the petitioners failed to preponderantly established that
the questioned SPA was a forgery and that the respondents were innocent purchasers for value who
acquired the property without any knowledge that the right of the attorney -in -fact simulated.

ISSUE

WHETHER OR NOT THE BUYER WAS AN INNOCENT PURCHASER FOR VALUE.

RULING

An innocent purchaser for value is one who buys the property of another without notice that some
other person has a right to or interest in it and who pays a full and fair price at the time of the purchase or
before receiving any notice of another person’s claim.

While courts protect the right of innocent purchaser for value and does not require him to look
beyond the Certificate of Title, this protection is not extended to a purchaser who is not dealing with a
registered owner of the land. In case the buyer does not deal with the registered owner of the real
property the law requires that a higher degree of prudence be exercised by the purchaser.

As succinctly pointed out in San Pedro v. Ong, 569 SCRA 767 (2008), “Every person dealing
with an agent is put upon inquiry and must discover upon his peril the authority of the agent and this is
especially true where the act of the agent is of unusual nature. If a person makes no inquiry, he is
chargeable with knowledge of the agent’s authority and his ignorance of that authority will not be
any excuse.”

Sally Yoshizaki vs. Joy Training Center of Aurora, Inc.,

G.R. No. 174978, July 31, 2013
By: Marion Thursday A. Regudo
Doctrine:
As a general rule, a contract of agency may be oral.However, it must be written when the law
requires a specific form. Specifically, Article 1874 of the Civil Code provides that the contract of agency
must be written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale
shall be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney
are necessary to convey real rights over immovable properties.
Facts:
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit
religious educational institution. It was the registered owner of a parcel of land and the building thereon
(real properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The

32
parcel of land was designated as Lot No. 125-L and was covered by Transfer Certificate of Title (TCT)
No. T-25334.
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a
Wrangler jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. The
spouses Johnson were members of Joy Training’s board of trustees at the time of sale. On December 7,
1998, TCT No. T-25334 was cancelled and TCT No. T-26052 was issued in the name of the spouses
Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio,
filed an action for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the spouses Yoshizaki, the spouses
Johnson, and Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora before the
Regional Trial Court of Baler, Aurora (RTC).In the complaint, Joy Training alleged that the spouses
Johnson sold its properties without the requisite authority from the board of directors.
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real
properties. However, it held that the sale was valid because Joy Training authorized the spouses Johnson
to sell the real properties. It recognized that there were only five actual members of the board of trustees;
consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale of
personal properties was valid because they were registered in the spouses Johnson’s name.
The CA upheld the RTC’s jurisdiction over the case but reversed its ruling with respect to the sale
of real properties.It also ruled that the resolution is void because it was not approved by a majority of the
board of trustees. It stated that under Section 25 of the Corporation Code, the basis for determining the
composition of the board of trustees is the list fixed in the articles of incorporation. Furthermore, Section
23 of the Corporation Code provides that the board of trustees shall hold office for one year and until their
successors are elected and qualified. Seven trustees constitute the board since Joy Training did not hold
an election after its incorporation.
Issues:
1) Whether or not there was a contract of agency to sell the real properties between Joy Training and the
spouses Johnson.
2) Whether or not there was a valid contract of sale of the real properties between Joy Training and the
spouses Yoshizaki.
Held:
1. There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of
land with its improvements.
The determination of the existence of a contract of agency and the validity of a contract of sale
requires the application of the relevant provisions of the Civil Code. It is a well-settled rule that "disputes
concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction."
As a general rule, a contract of agency may be oral. However, it must be written when the law
requires a specific form. Specifically, Article 1874 of the Civil Code provides that the contract of agency
must be written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale
shall be void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney
are necessary to convey real rights over immovable properties.
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy
Training specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2)
the resolution, (3) and the certification. We quote the pertinent portions of these documents for a thorough
examination of Sally’s claim.

TCT No. T-25334, entered in the Registry of Deeds on March 5, 1998, states:
A parcel of land x xx is registered in accordance with the provisions of the Property Registration
Decree in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A.
JOHNSON and LINDA S. JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box
3246, Shawnee, Ks 66203, U.S.A.

On the other hand, the fifth paragraph of the certification provides:

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY
purposes for the corporation on ANY and all matters and decisions regarding the property and ministry
here. xxx

33
 The above documents do not convince us of the existence of the contract of agency to sell the real
properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson. The
title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the
building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON"only means that the spouses Johnson represented Joy Training in land registration.
Moreover, the certification is a mere general power of attorney which comprises all of Joy
Training’s business.Article 1877 of the Civil Code clearly states that "an agency couched in general terms
comprises only acts of administration, even if the principal should state that he withholds no power or that
the agent may execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management."
2. The contract of sale is unenforceable.
Necessarily, the absence of a contract of agency renders the contract of sale unenforceable;Joy
Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing with a
registered land have the legal right to rely on the face of the title and to dispense with the need to inquire
further, except when the party concerned has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry. This rule applies when the ownership of a parcel
of land is disputed and not when the fact of agency is contested.
At this point, we reiterate the established principle that persons dealing with an agent must
ascertain not only the fact of agency, but also the nature and extent of the agent’s authority. A third
person with whom the agent wishes to contract on behalf of the principal may require the presentation of
the power of attorney, or the instructions as regards the agency. The basis for agency is representation and
a person dealing with an agent is put upon inquiry and must discover on his own peril the authority of the
agent. Thus, Sally bought the real properties at her own risk; she bears the risk of injury occasioned by
her transaction with the spouses Johnson.

Recio v Heirs of SpsAguedo and Ma. Altamirano,

G.R. No. 182349, July 24, 2013
By: Gerlyn Mae C. Sayson

Doctine:
Persons dealing with an assumed agency, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to establish it.
Apparent authority based on estoppel can arise from the principal who knowingly permit
the agent to hold himself out with authority and from the principal who clothe the agent with
indicia of authority that would lead a reasonably prudent person to believe that he actually has
such authority. Apparent authority of an agent arises only from “acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and relied upon in good faith
and as a result of the exercise of reasonable prudence by a third person as claimant and such must have
produced a change of position to its detriment.
Facts:
NenaRecio, the mother of petitioner RemanRecio, leased from the respondents namely
AlejandroAdelaida, Catalina, Alfredo, Francisco, Violeta and Loreto. The property was inherited by the
Altamiranos from their parents Aguedoand MariaAltamirano.
The petitioner claimed that in 1998 the Altamiranos offered to sell the property to his mother
which the latter accepted and the Altamiranos waived to collect rentals from the property. However, the
sale did not materialize due to the fault of the Altamiranos but Nena continued to occupy the property
with the consent of the latter.
In 1994, the Altamiranos renewed the option to buy the property. The petitioner conducted a
series of negotiations with the respondent Alejandro who represent himself as the representative of the
other heirs. After the negotiation, petioner and Alejandro entered into an oral contract of sale which the
petitioner made a partial payment of P110 000.00. Alejandro duly acknowledged the payment and issued

34
a receipt. The petitioner then again made another partial payment worth P50 000.00 which Alejandro
again acknowledged and issued a receipt.
Subsequently, the petitioner offered in many instances to pay the remaining balance of the agreed
purchase price of the subject property in the amount of P340,000.00), but Alejandro kept on avoiding the
petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro, the
execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price.
The petitioner then filed a complaint for Specific Performance with Damages and also annotate in
the certificate of title a notice of lispendens. However, pending the return of service of summons, the
petitioner discovered that the property was sold to the other respondents Lauro and MarcelinaMajarca.
The RTC declared the contract of sale between the Altamiranos and spouses Majarca null and
void and direct the Altamiranos to execute and absolute deed of sale in favour of the petitioner.
The CA affirmed the ruling of the RTC with modification declaring that the contract of sale
between Alejandro and petitioner is valid only with respect to the aliquot share of Alejandro in the
property and that petitioner and the Majarca’s are declared co- owners on the aliquot share of Alejandro.
The CA ruled that the summons to Alejandro is not summons to the other Altamiranos since Alejandro’s
authority to represent his co-heirs is disputed for lack of a written special power of attorney (SPA).
Alejandro’s sale of Lot No. 3 did not bind his co-owners because a sale of real property by one purporting
to be an agent of the owner without any written authority from the latter is null and void. An SPA from
the co-owners pursuant to Article 1878 of the New Civil Code is necessary.
Issue:
Whether or not Alejandro is considered an agent or representative of his co- heirs with respect to
the contract of sale entered by Recio and Alejandro.
Ruling:
No, Alejandro is not considered an agent of his co- heirs. A Special Power of Attorney signed by
all the heirs is an indispensable requisite before a co- heir becomes an agent of the rest of the heirs and
makes the contract of sale binding against all the heirs.
In Alcantara v. Nido, the Court emphasized the requirement of an SPA before an agent may sell
an immovable property.
Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the
following cases:
x xxx
(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
The petitioner insists that the authority of Alejandro to represent his co-heirs in the contract of
sale entered into with the petitioner had been adequately proven during the trial. He alleges that the other
Altamiranos are deemed to have knowledge of the contract of sale entered into by Alejandro with the
petitioner since all of them, either personally or through their authorized representatives participated in
the sale transaction with the Spouses Lajarca involving the same property.
However, the Supreme Court ruled that such allegation is untenable. Given the expressed
requirement under the Articles 1874 and 1878 of the Civil Code that there must be a written
authority to sell an immovable property, the petitioner’s arguments must fail.
Despite the notice of lispendens annotated in the title, it cannot be argued that Alejandro did not
have an SPA. Alejandro has no authority to bind his co- heirs in the contract of sale he entered with
petitioner.
Further, in the case of Woodchild Holdings, Inc. v. Roxas Electric and Construction Company,
Inc., the Court stated that “persons dealing with an assumedagency, whether the assumed agency be a
general or special one, are boundat their peril, if they would hold the principal liable, to ascertain
not only thefact of agency but also the nature and extent of authority, and in case eitheris
controverted, the burden of proof is upon them to establish it.”

35
 Applying in the present case, when the petitioner relied only on the words of respondent
Alejandrowithout securing a copy of the SPA in favor of the latter, the petitioner isbound by the risk
accompanying such trust on the mere assurance ofAlejandro.
The same Woodchildcase stressed that apparent authority based on estoppel can arise from
the principal who knowingly permit the agent to hold himself out with authority and from the
principal who clothe the agent with indicia of authority that would lead a reasonably prudent
person to believe that he actually has such authority. Apparent authority of an agent arises only from
“acts or conduct on the part of the principal and such acts or conduct of the principal must have been
known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third
person as claimant and such must have produced a change of position to its detriment.”
In the instant case, the sale to the Spouses Lajarca and other transactions where Alejandro
allegedly represented a considerable majority of the co-owners transpired after the sale to the petitioner;
thus, the petitioner cannot rely upon these acts or conduct to believe that Alejandro had the same
authority to negotiate for the sale of the subject property to him.
The present case shows no evidence on record of specific acts which the Altamiranos made
before tile sale of the subject property to the petitioner, indicating that they fully knew of the
representation of Alejandro.
All that the petitioner relied upon were acts that happened after the sale tohim. Absent the consent of
Alejandro's co-owners, the Court holds that the sale between the other Altamiranos and the petitioner
is null and void. However, the sale between petitioner and Alejandro is valid with respect only to
Alejandro’s aliquot share of the property.

ALVIN PATRIMONIO vs. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III

G.R. No. 187769 June 4, 2014
By: Mar Teresa B. Siega
Doctrine:

The authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it
has the burden of proof to show, not only the fact of agency, but also its nature and extent.

FACTS:

Petitioner Alvin Patrimonio and respondent Napoleon Gutierrez (Gutierrez) entered into a business
venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-
concerts and shows related to basketball. Petitioner was already then a decorated professional basketball
player while Gutierrez was a well-known sports columnist.

In the course of their business, the petitioner pre-signed several checks to answer for the expenses of
Slam Dunk. Although signed, these checks had no payee’s name, date or amount. The blank checks were
entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. According to petitioner, the arrangement was made so that he could verify the
validity of the payment and make the proper arrangements to fund the account.

In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to Marasigan (the
petitioner’s former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez’ request and gave him P200,000.00 sometime in February 1994.
Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed,with
the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only", and the
amount of "P200,000.00". The upper right portion of the check corresponding to the date was also filled
out with the words "May 23, 1994" but the petitioner contended that the same was not written by
Gutierrez.

36
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason "ACCOUNT
CLOSED." It was later revealed that petitioner’s account with the bank had been closed since May 28,
1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner.

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent Marasigan.
He completely denied authorizing the loan or the check’s negotiation, and asserted that he was not privy
to the parties’ loan agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22, 1997,Gutierrez
was declared in default.

RTC ruled in favor of Marasigan. It found that the petitioner, in issuing the pre-signed blank checks, had
the intention of issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to
negotiate or issue the check without his approval. While under Section 14 of the Negotiable Instruments
Law Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the
RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of the trust
reposed in him by the latter.

Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioner’s complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez.

The petitioner elevated the case to the Court of Appeals which affirmed the RTC ruling and subsequently
denied the Motion for Reconsideration that followed.

Thus petitioner filed the present petition for review on certiorari under Rule 45.

ISSUE:

Whether or not Petitioner is liable as Principal under the Contract of Loan

RULING:

No.

The petition is impressed with merit.

Liability Under the Contract of Loan:

The petitioner seeks to nullify the contract of loan on the ground that he never authorized the borrowing
of money. He points to Article 1878, paragraph 7 of the Civil Code, which explicitly requires a written
authority when the loan is contracted through an agent. The petitioner contends that absent such authority
in writing, he should not be held liable for the face value of the check because he was not a party or privy
to the agreement.

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be Nullified for Being
Void; Petitioner is Not Bound by the Contract of Loan.

Contracts of Agency May be Oral Unless The Law Requires a Specific Form.

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds
himself to render some service or to do something in representation or on behalf of another, with
the consent or authority of the latter." Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.

37
As a general rule, a contract of agency may be oral. However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest therein through an
agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority before an agent
can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the
things which are under administration.

Article 1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. We unequivocably declared in Lim Pin v. Liao Tian, et al., 7 that
the requirement under Article 1878 of the Civil Code refers to the nature of the authorization and not to
its form.

Be that as it may, the authority must be duly established by competent and convincing evidence other
than the self serving assertion of the party claiming that such authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The
requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act.

As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be
either oral or written, the one vital thing being that it shall be express. And more recently, We stated that,
if the special authority is not written, then it must be duly established by evidence.

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor
of Gutierrez. In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez (or anyone
for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any
such transaction.

In the absence of any showing of any agency relations or special authority to act for and in behalf of
the petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the
petitioner is not bound by the parties’ loan agreement.

Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of agency
and the special fiduciary relationship inherent in this contract must exist as a matter of fact. The
person alleging it has the burden of proof to show, not only the fact of agency, but also its nature
and extent.

SPOUSES ROLANDO AND HERMINIA SALVADOR, Petitioners, vs. SPOUSES ROGELIO

AND ELIZABETH RABAJA AND ROSARIO GONZALES, Respondents
G.R. No. 199990, February 04, 2015
By Carol Q. Solatorio

PRINCIPLE/DOCTRINE:

According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act
is deemed to have been performed within the scope of the agent's authority, if such act is within
the terms of the power of attorney, as written.

38
FACTS:

This case stemmed from a dispute involving the sellers, petitioner spouses Rolando and Herminia
Salvador (Spouses Salvador); the sellers’ agent, Rosario Gonzales (Gonzales); and the buyers, respondent
Spouses Rogelio and Elizabeth Rabaja (Spouses Rabaja), over a parcel of land covered by (TCT) No.
13426 and registered in the names of Spouses Salvador. From 1994 until 2002, Spouses Rabaja were
leasing an apartment in the subject lot.

Sometime in July 1998, Spouses Rabaja learned that Spouses Salvador were looking for a buyer of the
subject property. Petitioner Herminia Salvador (Herminia) personally introduced Gonzales to them as the
administrator of the said property. Spouses Salvador even handed to Gonzales the owner’s duplicate
certificate of title over the subject property. On July, 3, 1998, Spouses Rabaja made an initial payment of
P48,000.00 to Gonzales in the presence of Herminia. Gonzales then presented the Special Power of
Attorney3 (SPA), executed by Rolando Salvador (Rolando) and dated July 24, 1998. On the same day,
the parties executed the Contract to Sell which stipulated that for a consideration of P5,000,000.00,
Spouses Salvador sold, transferred and conveyed in favor of Spouses Rabaja the subject property.
Spouses Rabaja made several payments totalling P950,000.00, which were received by Gonzales pursuant
to the SPA provided earlier as evidenced by the check vouchers signed by Gonzales and the improvised
receipts signed by Herminia.

Sometime in June 1999, however, Spouses Salvador complained to Spouses Rabaja that they did not
receive any payment from Gonzales. This prompted Spouses Rabaja to suspend further payment of the
purchase price; and as a consequence, they received a notice to vacate the subject property from Spouses
Salvador for non-payment of rentals.

Thereafter, Spouses Salvador instituted an action for ejectment against Spouses Rabaja. In turn, Spouses
Rabaja filed an action for rescission of contract against Spouses Salvador and Gonzales, the subject
matter of the present petition.

In the rescission case filed by Spouses Rabaja against Spouses Salvador and Gonzales, Spouses Rabaja
demanded the rescission of the contract to sell praying that the amount of P950,000.00 they previously
paid to Spouses Salvador be returned to them.

Spouses Salvador filed their answer with counterclaim and cross-claim contending that there was no
meeting of the minds between the parties and that the SPA in favor of Gonzales was falsified. In fact, they
filed a case for falsification against Gonzales, but it was dismissed because the original of the alleged
falsified SPA could not be produced. They further averred that they did not receive any payment from
Spouses Rabaja through Gonzales. In her defense, Gonzales filed her answer stating that the SPA was not
falsified and that the payments of Spouses Rabaja amounting to P950,000.00 were all handed over to
Spouses Salvador.

RTC rendered a decision in favor of Spouses Rabaja. It held that the signature of Spouses Salvador
affixed in the contract to sell appeared to be authentic. It also held that the contract, although denominated
as “contract to sell,” was actually a contract of sale because Spouses Salvador, as vendors, did not reserve
their title to the property until the vendees had fully paid the purchase price. Since the contract entered
into was a reciprocal contract, it could be validly rescinded by Spouses Rabaja, and in the process, they
could recover the amount of P950,000.00 jointly and severally from Spouses Salvador and Gonzales. The
RTC stated that Gonzales was undoubtedly the attorney-in-fact of Spouses Salvador absent any taint of
irregularity. Spouses Rabaja could not be faulted in dealing with Gonzales who was duly equipped with
the SPA from Spouses Salvador.

CA affirmed the decision of the RTC. It ruled that the “contract to sell” was indeed a contract of sale and
that Gonzales was armed with an SPA and was, in fact, introduced to Spouses Rabaja by Spouses
Salvador as the administrator of the property. Spouses Rabaja could not be blamed if they had transacted
with Gonzales.

Hence, this petition.

39
ISSUES:

Spouses Salvador raise in issue the veracity of the receipts given by Gonzales, the SPA and the
validity of the contract to sell. They claim that the improvised receipts should not be given
credence because these were crude and suspicious, measuring only by 2 x 2 inches which showed
that Gonzales misappropriated the payments of Spouses Rabaja for herself and did not remit the
amount of P950,000.00 to them. As there was no consideration, then no valid contract to sell
existed.

RULING:

Gonzales, as agent of Spouses Salvador, could validly receive the payments of Spouses Rabaja

The Court agrees with the courts below in finding that the contract entered into by the parties was
essentially a contract of sale which could be validly rescinded. Spouses Salvador insist that they did not
receive the payments made by Spouses Rabaja from Gonzales which totalled P950,000.00 and that
Gonzales was not their duly authorized agent. These contentions, however, must fail in light of the
applicable provisions of the New Civil Code which state:

Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the
scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if
the agent has in fact exceeded the limits of his authority according to an understanding between the
principal and the agent.

x xxx

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require
the presentation of the power of attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons who have relied upon the power of
attorney or instructions shown them.

x xxx

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within
the scope of his authority.

Persons dealing with an agent must ascertain not only the fact of agency, but also the nature and extent of
the agent’s authority. A third person with whom the agent wishes to contract on behalf of the principal
may require the presentation of the power of attorney, or the instructions as regards the agency. The basis
for agency is representation and a person dealing with an agent is put upon inquiry and must discover on
his own peril the authority of the agent.

According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act is
deemed to have been performed within the scope of the agent's authority, if such act is within the terms of
the power of attorney, as written. In this case, Spouses Rabaja did not recklessly enter into a contract to
sell with Gonzales. They required her presentation of the power of attorney before they transacted with
her principal. And when Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to
rely on it.

The law mandates an agent to act within the scope of his authority which what appears in the written
terms of the power of attorney granted upon him. The Court holds that, indeed, Gonzales acted within the
scope of her authority. The SPA precisely stated that she could administer the property, negotiate the sale
and collect any document and all payments related to the subject property. As the agent acted within the
scope of his authority, the principal must comply with all the obligations. As correctly held by the CA,
considering that it was not shown that Gonzales exceeded her authority or that she expressly bound
herself to be liable, then she could not be considered personally and solidarily liable with the principal,
Spouses Salvador.

40
Perhaps the most significant point which defeats the petition would be the fact that it was Herminia
herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of the subject
property. By their own ostensible acts, Spouses Salvador made third persons believe that Gonzales was
duly authorized to administer, negotiate and sell the subject property. This fact was even affirmed by
Spouses Salvador themselves in their petition where they stated that they had authorized Gonzales to look
for a buyer of their property.40 It is already too late in the day for Spouses Salvador to retract the
representation to unjustifiably escape their principal obligation.

As correctly held by the CA and the RTC, considering that there was a valid SPA, then Spouses Rabaja
properly made payments to Gonzales, as agent of Spouses Salvador; and it was as if they paid to Spouses
Salvador. It is of no moment, insofar as Spouses Rabaja are concerned, whether or not the payments were
actually remitted to Spouses Salvador. Any internal matter, arrangement, grievance or strife between the
principal and the agent is theirs alone and should not affect third persons. If Spouses Salvador did not
receive the payments or they wish to specifically revoke the SPA, then their recourse is to institute a
separate action against Gonzales.

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his

capacity as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and
former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B.
DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG, petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court,
Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul
Gutierrez, respondents.
G.R. No. 156015. August 11, 2005
By: Marietes M. Sumampong

DOCTRINE:

A contract of agency is generally revocable as it is a personal contract of representation based on

trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on
the will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at
will.
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency.  The reason for its irrevocability is because
the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but
also that of the agent and third persons which are affected. Hence, the law provides that in such cases,
the agency cannot be revoked at the sole will of the principal.
FACTS:
The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte,
Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the
Philippines, and as then head of the Intelligence Service of the Armed Forces of the Philippines and the
Presidential Security Group, entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes.
The MOA granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Reyes,
together with petitioners, started digging, tunneling and blasting works on the said land of Legaspi. The
complaint also alleged that petitioner Calimlim assigned about 80 military personnel to guard the area and
encamp thereon to intimidate Legaspi and other occupants of the area from going near the subject land.
Legaspi executed a special power of attorney (SPA) appointing his nephew, private respondent
Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure hunting
activities on Legaspi’s land and to file charges against those who may enter it without the latter’s
authority. Gutierrez filed a case for damages and injunction against petitioners for illegally entering
Legaspi’s land. He hired the legal services of Atty. HomobonoAdaza, by way of attorney’s fee, the latter
shall be entitled to 30% of Legaspi’s share in whatever treasure may be found in the land. In addition,
Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and defray all
expenses for the cost of the litigation.

41
 Pettionerswere issued a 72-hour temporary restraining order (TRO).
Petitioners filed a Motion to Dismiss contending: first, there is no real party-in-interest as the SPA of
Gutierrez to bring the suit was already revoked by Legaspi as evidenced by a Deed of Revocation,  and,
second, Gutierrez failed to establish that the alleged armed men guarding the area were acting on orders
of petitioners. Meanwhile, the trial court granted private respondents application for a writ of preliminary
injunction on the following grounds: (1) the diggings and blastings appear to have been made on the land
of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious damage to
Legaspis land; and, (2) the SPA granted to Gutierrez continues to be valid.
The trial court issued another Order denying petitioners motion to dismiss and requiring petitioners
to answer the complaint.
Hence this petition.

ISSUE:

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT

GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI and THAT THE COMPLAINT
SHOULD BE DISMISSED.

HELD:

We find no merit in the petition.

Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render
some service or do something in representation or on behalf of another, known as the principal, with the
consent or authority of the latter.
A contract of agency is generally revocable as it is a personal contract of representation based on
trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on
the will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at
will.
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency. The reason for its irrevocability is because
the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but
also that of the agent and third persons which are affected. Hence, the law provides that in such cases, the
agency cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted by
Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from the
records that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting
activities in the subject land; to file any case against anyone who enters the land without authority
from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig for any treasure
within the land and enter into agreements relative thereto.  It is clear that the treasure that may be
found in the land is the subject matter of the agency; that under the SPA, Gutierrez can enter into contract
for the legal services ; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of the
agency. When an agency is constituted as a clause in a bilateral contract, that is, when the agency is
inserted in another agreement, the agency ceases to be revocable at the pleasure of the principal as the
agency shall now follow the condition of the bilateral agreement.Consequently, the Deed of Revocation
executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the prosecution of
the case at bar is unaffected.

SPOUSES FERNANDO AND LOURDES VILORIA, PETITIONERS, vs.

CONTINENTAL AIRLINES, INC., RESPONDENT.
[ G.R. No. 188288, January 16, 2012 ]
By: Misaellee M. Tejano

Doctrine

42
Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to
act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there
is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of
a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and
(4) the agent acts within the scope of his authority.

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."

Facts

On July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, 2
round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental
Airlines from a travel agency called “Holiday Travel” and was attended to by a certain Margaret Mage.
According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that
there were no available seats at Amtrak, an intercity passenger train service provider in the United States.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to August 6, 1997. Mager
informed him that flights to Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Fernando opted to request for a refund. Mager denied his
request as the subject tickets are non-refundable.

Fernando later learned that there were available seats at Amtrak. Fernando went to Holiday Travel and
confronted Mager with the Amtrak tickets, telling her that she had misled them into buying the
Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando
reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-
refundable.

Upon returning to the Philippines, Fernando sent a letter to Continental Airlines on February 11, 1998,
demanding a refund and alleging that Mager had deluded them into purchasing the subject tickets. In a
letter dated March 24, 1998, Continental denied Fernando’s request for a refund and advised him that he
may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within
two (2) years from the date they were issued.

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997
and to pay P1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as
attorney’s fees.

The RTC ruled that the Spouses Viloria were tricked into buying Continental Airline tickets on Ms.
Mager’s misleading misrepresentations. It held that Mager is CAI’s agent, hence, bound by her bad faith
and misrepresentation.

The Court of Appeals reversed the RTC. It ruled that the contractual relationship between Holiday Travel
and Continental is not an agency but that of a sale.

Issue

Whether or not there exists a principal-agent relationship between CAI and Holiday Travel?

Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts
of Holiday Travel’s agents and employees such as Mager?

Ruling

The petition is meritorious.

43
I. A principal-agent relationship exists between CAI and Holiday Travel.

In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the nature of an agency and
spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements
of agency are: (1) there is consent, express or implied of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority.

Agency is basically personal, representative, and derivative in nature. The authority of the agent
to act emanates from the powers granted to him by his principal; his act is the act of the principal
if done within the scope of the authority. Qui facit per alium facit se. "He who acts through
another acts himself."[19]

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second
elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby
Holiday Travel would enter into contracts of carriage with third persons on CAI’s behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity
and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday
Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation
that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the
validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to
enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March
24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel
with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the
subject tickets, CAI did not deny that Holiday Travel is its authorized agent.

As categorically provided under Article 1869 of the Civil Code, “[a]gency may be express, or implied
from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.”

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar
that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale. The
distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970, had
already formulated the guidelines that would aid in differentiating the two (2) contracts.

In Commissioner of Internal Revenue v. Constantino, this Court extrapolated that the primordial
differentiating consideration between the two (2) contracts is the transfer of ownership or title over the
property subject of the contract. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of
the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the
parties intended that the delivery of the property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the property as he pleases.

“The difficulty in distinguishing between contracts of sale and the creation of an agency to sell
has led to the establishment of rules by the application of which this difficulty may be solved.
The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales made.

44
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its
agent’s employees if it has been established by preponderance of evidence that the principal was
also at fault or negligent or that the principal exercise control and supervision over them.

If the passenger’s cause of action against the airline company is premised on culpa aquiliana or quasi-
delict for a tort committed by the employee of the airline company’s agent, there must be an independent
showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere fact that the employee of the airline
company’s agent has committed a tort is not sufficient to hold the airline company liable. There is no
vinculum juris between the airline company and its agent’s employees and the contractual relationship
between the airline company and its agent does not operate to create a juridical tie between the airline
company and its agent’s employees. Article 2180 of the Civil Code does not make the principal
vicariously liable for the tort committed by its agent’s employees and the principal-agency relationship
per se does not make the principal a party to such tort; hence, the need to prove the principal’s own fault
or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on
contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s
fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs.
Gillego,24 “in an action based on a breach of contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier.”

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly
one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it
was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated.
Apart from their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel
is CAI’s agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to
Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said
misrepresentation.

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by
preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under no
obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v.
Apostol,28 that:

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s employees
or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.

Ace Navigation Co. vs. FGU Insurance Corp.

G.R. No. 171591. June, 25, 2012
By: Ada Bonita I. Tohay

DOCTRINE:

As a mere agent, ACENAV, cannot be made responsible or held accountable for the
damage supposedly caused by its principal.

FACTS:

Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti at China bags of Cement to be
discharged at the Port of Manila and delivered to its consignee, Heindrich Trading Corp. (HEINDRICH).

45
The subject shipment was insured with respondents, FGU and PIONEER against all risks under Marine
Open Policy.

The subject vessel is owned by PAKARTI which it chartered to SHINWA. Representing itself as owner
of the vessel, SHINWA entered into a charter party contract with SKY, an agent of KEE YEH, which
further chartered it to REGENCY. Thus, it was REGENCY that directly dealt with consignee
HEINDRICH.

The vessel arrived at the port of Manila and the shipment was discharged. However upon inspection of
HEINDRICH and petitioner ACE, agent of CARDIA, it was found out of 165,000 bag so of cement,
43,905 bags were in bad order and condition. Unable to collect the sustained damages from the shipper,
CARDIA, and the charter party REGENCY, the respondents, as co-insurers of the cargo, paid
HEINDRICH and consequently became subrogated to all the rights and causes of action accruing to
HEINDRICH.

Thus, respondents filed a complaint for damages against the defendants. In their answer with
counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits against them cannot proper
because they were not named as parties in the bill of lading. ACENAV likewise claimed that, not being
privy to the bill of lading, it was not a real party-in-interest and further denied being the local ship agent
of the vessel of REGENCY and claimed to be the agent of the shipper, CARDIA. SKY denied having
acted as agent of the charterer, KEE YEH, which chartered the vessel from SHINWA, which originally
chartered the vessel from PAKARTI. SKY averred that it cannot be sued as an agent without impleading
its alleged principal, KEE YEH.

The RTC dismissed the case. On appeal, the CA found PAKARTI, SHINWA, KEE YEH and its agent
SKY solidarily liable for 70% and CARDIA and its agent ACENAV for the remaining 30% of the claim.

Hence, this case. (SKY, PAKARTI, and SHINWA withdrew their petitions for lack of interest. Thus, only
the petition of ACENAV remained for the court's resolution.)

ACENAV asserts that it cannot be held liable for the damages sought to be collected by the respondents.
It also alleged that since its principal, CARDIA, was not impleaded as a party-defendant/respondent in the
instant suit, no liability can therefore attach to it as a mere agent.

On the other hand, respondents maintain that ACENAV is a ship agent and not a mere agent of CARDIA.

ISSUE:

Whether or not ACENAV may be held liable to the respondents 30% claim.

RULING:

NO.

Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of
the arrival of the vessel in order for the latter to immediately take possession of the goods. ACENAV's
participation was simply to assume responsibility over the cargo when they were unloaded from the
vessel. Hence, no reversible error was committed by the courts a quo in holding that ACENAV was not a
ship agent within the meaning and context of Article 586 of the Code of Commerce, but a mere agent of
CARDIA, the shipper.

Article 1868 of the Civil Code states:

Art. 1868. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.

Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers.

46
Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV exceeded its
authority in the discharge of its duties as a mere agent of CARDIA. Neither was it alleged, much less
proved, that ACENAV's limited obligation as agent of the shipper, CARDIA was not known to
HEINDRICH.

Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability attributed upon
it by the CA on the basis of its finding that the damage sustained by the cargo was due to improper
packing cannot be borne by AVENAV. As a mere agent, ACENAV, cannot be made responsible or held
accountable for the damage supposedly caused by its principal.

SPOUSES ELISEO R. BAUTISTA AND EMPERATRIZ C. BAUTISTA, petitioners, vs.

SPOUSES MILA JALANDONI AND ANTONIO JALANDONI AND MANILA CREDIT
CORPORATION, respondents.
[G.R. No. 171464. November 27, 2013.]

MANILA CREDIT CORPORATION, petitioner, vs. SPOUSES MILA AND ANTONIO JALANDONI,
and SPOUSES ELISEO AND EMPERATRIZ C. BAUTISTA, respondents.
[G.R. No. 199341. November 27, 2013.]

By: PARKER F. TRIAS

TOPIC: AUTHORITY OF THE AGENT TO SELL A REAL PROPERTY

PRINCIPLE:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.

Likewise, ARTICLE1878 paragraph 5 of the Civil Code specifically mandates that the authority of the
agent to sell a real property must be conferred in writing, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxx

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;

The foregoing provisions explicitly require a written authority when the sale of a piece of land is through
an agent, whether the sale is gratuitously or for a valuable consideration. Absent such authority in
writing, the sale is null and void.

FACTS:

Spouses Jalandoni were the registered owners of two (2) parcels of land, covered by Transfer
Certificate of Title (TCT) Nos. 201048 and 201049. The two lots were located in Muntinlupa City, each
parcel of land containing an area of Six Hundred (600) square meters, more or less, amounting to
P1,320,000.00 per lot.

In May 1997, the Spouses Jalandoni applied for a loan with a commercial bank and, as a security
thereof, they offered to constitute a real estate mortgage over their two lots. After a routine credit
investigation, it was discovered that their titles over the two lots had been cancelled and new TCT Nos.
206091 and 205624 were issued in the names of Spouses Baustista. Upon further investigation, they
found out that the bases for the cancellation of their titles were two deeds of absolute sale, dated April 4,
1996 and May 4, 1996, purportedly executed and signed by them in favor of Spouses Baustista.

Aggrieved, Spouses Jalandoni filed a complaint for cancellation of titles and damages claiming
that they did not sell the subject lots and denied having executed the deeds of absolute sale. They asserted

47
that the owner's duplicate certificates of title were still in their possession; that their signatures appearing
on the deeds of absolute sale were forged and that said deeds were null and void and transferred no title in
favor of Spouses Bautista; that they never met the Spouses Bautista; that they did not appear before the
notary public who notarized the deeds of absolute sale; that the community tax certificates indicated in
the deeds of absolute sale were not issued to them and that the entries therein were forged and falsified;
that Spouses Bautista paid a grossly inadequate price of only P600,000.00 per lot; and that the Spouses
Bautista were aware of the true value of the lots because they mortgaged one lot to Spouses Tongco for
P1,700,000.00 and the other lot for P3,493,379.82 to MCC.

In their answer, Spouses Bautista claimed that in March 1996, a certain Teresita Nasino (Nasino)
offered to Eliseo Baustista (Eliseo) two parcels of land located in Muntinlupa City; that the parcels of
land were sold at a bargain price because the owners were in dire need of money; that upon their request,
Nasino showed them the photocopies of the titles covering the subject lands; that Nasino told them that
she would negotiate with the Spouses Jalandoni, prepare the necessary documents and cause the
registration of the sale with the Register of Deeds; and that since Nasino was a wife of a friend, Spouses
Baustista trusted her and gave her the authority to negotiate with Spouses Jalandoni on their behalf.

Spouses Bautista further alleged that in April 1996, Nasino informed Eliseo that the deeds of sale
had been prepared and signed by Spouses Jalandoni; that they, in turn, signed the deeds of sale and gave
Nasino the amount of P1,200,000.00; that TCT Nos. 206091 and 205624 were issued to them; that since
they needed funds for a new project, Eliseo contracted a loan with Spouses Tongco using as a security the
parcel of land covered by TCT No. 205624; that he also contracted a loan with MCC in the amount of
P3,493,3 79.82 and used as a security the lot covered by TCT No. 206091; that they eventually paid the
loan with the Spouses Tongco, thus, the real estate mortgage was cancelled; and that since they were
having difficulty paying the interests of their loan with the MCC, they also mortgaged the lot covered by
TCT No. 205624.

THE RTC RULING

On December 17, 2004, the RTC rendered judgment declaring the sale of the subject lots void.
The RTC explained that Nasino had no authority to negotiate for the Spouses Jalandoni, much less to
receive the consideration of the sale. Spouses Bautista were not innocent purchasers in good faith and for
value for their failure to personally verify the original copies of the titles of the subject properties and to
ascertain the authority of Nasino since they were not dealing with the registered owner. The RTC,
nonetheless, found MCC a mortgagee in good faith and upheld the validity of the mortgage contract
between Spouses Bautista and MCC.

In their appellants brief, Spouses Jalandoni prayed that (1) the TCT Nos. 205624 and 201061 in
the names of Spouses Bautista be declared null and void; (2) the real estate mortgage constituted on TCT
Nos. 205624 and 201061 in favor of Manila Credit Corporation be nullified; and (3) the Register of
Deeds of Muntinlupa City be ordered to reinstate TCT Nos. 201048 and 201049 in their names. On the
other hand, Spouses Bautista asked for the reversal of the R TC decision and the dismissal of the
complaint for lack of merit.

The CA, in its Decision, dated September 30, 2005, modified the RTC decision, ordering Spouses
Bautista to pay Spouses Jalandoni actual damages in the amount of P1,700,000.00 for the property
covered by TCT No. 205624 and P3,493,379.82 for the property covered by TCT No. 206091.

ISSUE:

Whether or not the Spouses Bautista were buyers in good faith and for value;

HELD:

Before resolving the issue on whether Spouses Bautista were purchasers in good faith for value,
the Court shall first discuss the validity of the sale.

Articles 1874 of the Civil Code provides:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.

48
 Likewise, Article 1878 paragraph 5 of the Civil Code specifically mandates that the authority of
the agent to sell a real property must be conferred in writing, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;

x x x.

The foregoing provisions explicitly require a written authority when the sale of a piece of land is
through an agent, whether the sale is gratuitously or for a valuable consideration. Absent such
authority in writing, the sale is null and void.

In the case at bar, it is undisputed that the sale of the subject lots to Spouses Bautista was void.
Based on the records, Nasino had no written authority from Spouses Jalandoni to sell the subject lots. The
testimony of Eliseo that Nasino was empowered by a special power of attorney to sell the subject lots was
bereft of merit as the alleged special power attorney was neither presented in court nor was it referred to
in the deeds of absolute sale. Bare allegations, unsubstantiated by evidence, are not equivalent to proof
under the Rules of Court.

Defendant Eliseo Bautista admitted not having met the plaintiffs except when the instant case was
filed in court. He also testified that a Special Power of Attorney was executed by the plaintiffs in favor of
Nasino. However, such Special Power of Attorney was not presented in evidence much less the tenor
thereof referred to in the Deeds of Sale purportedly executed by the plaintiffs with Bautista. Hence, this
Court cannot sustain Bautista's allegation that Nasino was specifically authorized to transact for and in
behalf of the plaintiffs over the vehement denial of the latter to the contrary.

CREDIT TRANSACTIONS
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, petitioners, vs. SPOUSES ROMEO
ABELLA AND ANNIE ABELLA, respondents
[G.R. No. 195166. July 8, 2015.]

By: Ernesto Miguel B. Amores

Doctrine/s:

Under BSP Circular No. 799, “In the absence of a contract expressly providing for a different
rate, the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments has been reduced from twelve percent (12%) to six percent (6%) per annum..”

The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition
as righteous and as one that may be sustained within the sphere of public or private morals.

Facts:

On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of
money and damages with prayer for preliminary attachment against respondents Spouses Romeo and
Annie Abella before the Regional Trial Court, Branch 8, Kalibo, Aklan.

49
 In their Complaint, petitioners alleged that respondents obtained a loan from them in the amount
of P500,000.00. The loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was
payable within one (1) year. Petitioners added that respondents were able to pay a total of P200,000.00 —
P100,000.00 paid on two separate occasions — leaving an unpaid balance of P300,000.00. 

In their (with counterclaim and motion to dismiss), respondents alleged that the amount involved
did not pertain to a loan they obtained from petitioners but was part of the capital for a joint venture
involving the lending of money.

Specifically, respondents claimed that they were approached by petitioners, who proposed that if
respondents were to "undertake the management of whatever money [petitioners] would give them,
[petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]."  The 2.5% that each party
would be receiving represented their sharing of the 5% interest that the joint venture was supposedly
going to charge against its debtors. Respondents further alleged that the one year averred by petitioners
was not a deadline for payment but the term within which they were to return the money placed by
petitioners should the joint venture prove to be not lucrative. Moreover, they claimed that the entire
amount of P500,000.00 was disposed of in accordance with their agreed terms and conditions and that
petitioners terminated the joint venture, prompting them to collect from the joint venture's borrowers.
They were, however, able to collect only to the extent of P200,000.00; hence, the P300,000.00 balance
remained unpaid.

The Regional Trial Court ruled in favor of petitioners and said that the contract was a simple
loan.

On respondents' appeal, the Court of Appeals ruled that while respondents had indeed entered
into a simple loan with petitioners, respondents were no longer liable to pay the outstanding amount of
P300,000.00. 

The Court of Appeals reasoned that the loan could not have earned interest, whether as
contractually stipulated interest or as interest in the concept of actual or compensatory damages. As to the
loan's not having earned stipulated interest, the Court of Appeals anchored its ruling on Article 1956 of
the Civil Code, which requires interest to be stipulated in writing for it to be due.

Petitioners cite Article 1371 of the Civil Code, which calls for the consideration of the
contracting parties' contemporaneous and subsequent acts in determining their true intention. Petitioners
insist that respondents' consistent payment of interest in the year following the perfection of the loan
showed that interest at 2.5% per month was properly agreed upon despite its not having been expressly
stated in the acknowledgment receipt. They add that during the proceedings before the Regional Trial
Court, respondents admitted that interest was due on the loan

Issue/s:

Whether interest accrued on respondents' loan from petitioners. If so, at what rate?

Held:

Yes. Conventional interest at the rate of 12% per annum, outstanding conventional interest — if
any is due from respondents — shall itself earn legal interest from the time judicial demand was made by
petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with Article 2212 of
the Civil Code, which provides:

Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although
the obligation may be silent upon this point.

Nacar states that "the interest due shall itself earn legal interest from the time it is judicially
demanded."6% per annum.

50
 Under Circular No. 799, “the rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest,
shall be 6 percent per annum.” (Emphasis supplied, citations omitted)

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded.  In the
absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.  (Emphasis supplied, citations omitted)

The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of
the Civil Code and specifically governs simple loans or mutuum. Mutuum is a type of nominate contract
that is specifically recognized by the Civil Code and for which the Civil Code provides a specific set of
governing rules: Articles 1953 to 1961

The imposition of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of
justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition
as righteous and as one that may be sustained within the sphere of public or private morals

Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest. By the end of
the ninth year, it would have multiplied more than tenfold (or increased to 1,060.45%). In 2015, this
would have multiplied by more than 66 times (or increased to 6,654.17%). This is grossly unfair,
especially since up to the fourth year from when the loan was obtained, respondents had been assiduously
delivering payment. This reduces their best efforts to satisfy their obligation into a protracted servicing of
a rapacious loan.

In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the
application of any interest rate other than that specifically provided for by the parties in their loan
document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific
stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is unconscionable.
The conventional interest due on the principal amount loaned by respondents from petitioners is held to
be 12% per annum.

Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a
simple loan or mutuum, but no exact interest rate was mentioned, the legal rate of interest shall apply. At
present, this is 6% per annum, subject to Nacar's qualification on prospective application.

Sps. Felipe Solitarios and Julia Torda vs. Sps. Gaston Jaque and Lilia Jaque,
G.R. No. 199852, November 12, 2014
By: Ramy D. Armenion

Doctrine/s:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.

51
Facts:

A parcel of agricultural land designated as Lot 4089, consisting of 40,608 square meters (sq. m.) was
originally registered in the name of petitioner Felipe Solitarios , and, thereafter, in the name of the
respondents, spouses Gaston and Lilia Jaque (the Jaques).

In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City, the
respondents spouses Jaque alleged that they purchased Lot 4089 from the petitioners, spouses Solitarios
in stages. According to respondents, they initially bought one-half of Lot No. 4089 for P7,000.00. This
sale is allegedly evidenced by a notarized Deed of Sale dated May 8, 1981. Two months later, the spouses
Solitarios supposedly mortgaged the remaining half of Lot 4089 to the Jaques via a Real Estate Mortgage
(REM) dated July 15, 1981, to securea loan amounting to P3,000.00.

After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However,
instead of executing a separate deed of sale for the second half, they executed a Deed of Sale dated April
26, 1983 for the whole lot to save on taxes, by making it appear that the consideration for the sale of the
entire lot was only P12,000.00 when the Jaques actually paid P19,000.00 in cash and condoned the
spouses Solitarios’ P3,000.00 loan.

In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to
retain possession of Lot 4089, subject only to the condition that the spouses Solitarioswill regularly
deliver a portion of the property’s produce. In an alleged breach of their agreement, however, the spouses
Solitarios stopped delivering any produce sometime in 2000. Worse, the spouses Solitarios even claimed
ownership over Lot 4089. Thus, the Jaques filed the adverted complaint with the RTC.

For their part, the spouses Solitarios denied selling Lot 4089 and explained that they merely mortgaged
the same to the Jaques after the latter helped them redeem the land from the Philippine National Bank
(PNB).

Issue/s:

Whether or not the transaction between the parties is an absolute sale or an equitable mortgage.

Held:

The transaction is an equitable mortgage. Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains inpossession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.

There is sufficient basis to indulge in the presumption that the transaction between the parties was that of
an equitable mortgage and that Rudy never wanted to sell the same to Grace. First, Rudy has remained in
possession of the subject property and exercised acts of ownership over the said lot even after the
purported absolute sale of Lot 4089; Second, the Grace did not physically occupy Lot 4089; Third, the
consideration for the sale of the whole land as stated in the Deed of Sale dated April 26, 1983, was only
P12,000.00, an amount grossly inadequate for a titled coconut and rice lands consisting of 40,608 sq. m.;
Fourth, Grace did not disturb the possession of Lot 4089 by Miriam, Rudy’s sister-in-law, who resided
therein; and Fifth, Grace never had a tenant in the subject property.
GILAT SATELLITE NETWORKS LTD.,
vs. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC.,
G.R. No. 189563 April 7, 2014
By: MARIO DENNIS A. CALVO

52
Doctrines:

Existence of Surety Agreement.The acceptance [of a surety agreement], however, does not change in any
material way the creditor’s relationship with the principal debtor nor does it make the surety an active
party to the principal creditor-debtor relationship. In other words, the acceptance does not give the surety
the right to intervene in the principal contract. The surety’s role arises only upon the debtor’s default, at
which time, it can be directly held liable by the creditor for payment as a solidary obligor." Hence, the
surety remains a stranger to the Purchase Agreement. We agree with petitioner that respondent cannot
invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a party to that
contract. An arbitration agreement being contractual in nature, it is binding only on the parties thereto, as
well as their assigns and heirs.

Liability of Surety: In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary
with that of the principal debtor. This undertaking makes a surety agreement an ancillary contract, as it
presupposes the existence of a principal contract. Nevertheless, although the contract of a surety is in
essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of the
principal is said to be direct, primary and absolute; in other words, a surety is directly and equally bound
with the principal. He becomes liable for the debt and duty of the principal obligor, even without
possessing a direct or personal interest in the obligations constituted by the latter. Thus, a surety is not
entitled to a separate notice of default or to the benefit of excussion. It may in fact be sued separately or
together with the principal debtor

Interest: Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor
in the payment of the latter's obligation, provided that the delay is inexcusable.

FACTS:

On September 15, 1999, One Virtual placed with GILAT a purchase order for various
telecommunications equipment, accessories, spares, services and software, at a total purchase price of
Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of
the said purchase price for the goods delivered, One Virtual promised to pay a portion thereof totalling
US$1.2 Million in accordance with the payment schedule dated 22 November 1999. To ensure the prompt
payment of this amount, it obtained defendant UCPB General Insurance Co., Inc.s surety bond dated 3
December 1999, in favor of GILAT.

During the period between September 1999 and June 2000, GILAT shipped and delivered to One Virtual
the purchased products and equipment, as evidenced by airway bills/Bill of Lading. All of the equipment
(including the software components for which payment was secured by the surety bond, was shipped by
GILAT and duly received by One Virtual. Under an endorsement dated December 23, 1999, the surety
issued, with One Virtuals conformity, an amendment to the surety bond, Annex A thereof, correcting its
expiry date from May 30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the
due date of May 30, 2000 in accordance with the payment schedule to the surety bond, prompting GILAT
to write the surety defendant UCPB on June 5, 2000, a demand letter for payment of the said amount of
US$400,000.00. No part of the amount set forth in this demand has been paid to date by either One
Virtual or defendant UCPB. One Virtual likewise failed to pay on the succeeding payment installment
date of 30 November 2000 of the surety bond, prompting GILAT to send a second demand letter dated
January 24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety
bond, plus interests and expenses and which letter was received by the defendant surety on January 25,
2001. However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence,
the instant complaint.

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint against respondent UCPB
General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests
and expenses. After due hearing, the RTC rendered its Decision for the plaintiff.On 18 October 2007,
respondent appealed to the CA. The appellate dismissed the case for lack of jurisdiction.On 9 September
2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The motion was
denied for lack of merit in a Resolution issued by the CA on 16 September 2009.

ISSUES:

53
 1. Whether or not the Surety has the right to intervene and invoke the arbitration clause in the
principal contract buyer and seller.
2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfillment by
respondent of its obligation under the Suretyship Agreement.

HELD:

1. No. The existence of a suretyship agreement does not give the surety the right to intervene in the
principal contract, nor can an arbitration clause between the buyer and the seller be invoked by a non-
party such as the surety.Petitioner alleges that arbitration laws mandate that no court can compel
arbitration, unless a party entitled to it applies for this relief. This referral, however, can only be
demanded by one who is a party to the arbitration agreement. Considering that neither petitioner nor One
Virtual has asked for a referral, there is no basis for the CAs order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that the creditor may proceed against
the surety without having first sued the principal debtor. Even the Surety Agreement itself states that
respondent becomes liable upon mere failure of the Principal to make such prompt payment. Thus,
petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before
proceeding against respondent.

On the other hand, respondent maintains that a surety contract is merely an accessory contract, which
cannot exist without a valid obligation. Thus, the surety may avail itself of all the defenses available to
the principal debtor and inherent in the debt that is, the right to invoke the arbitration clause in the
Purchase Agreement.

In suretyship, the oft-repeated rule is that a suretys liability is joint and solidary with that of the principal
debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes the existence
of a principal contract. Nevertheless, although the contract of a surety is in essence secondary only to a
valid principal obligation, its liability to the creditor or promise of the principal is said to be direct,
primary and absolute; in other words, a surety is directly and equally bound with the principal. He
becomes liable for the debt and duty of the principal obligor, even without possessing a direct or personal
interest in the obligations constituted by the latter. Thus, a surety is not entitled to a separate notice of
default or to the benefit of excussion. It may in fact be sued separately or together with the principal
debtor.

An arbitration agreement being contractual in nature, it is binding only on the parties thereto, as well as
their assigns and heirs.

2. YES. Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor
in the payment of the latter's obligation, provided that the delay is inexcusable.

Art. 2209, CC: [i]f an obligation consists in the payment of a sum of money, and the debtor incurs a
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest.

In order for the debtor (in this case, the surety) to be in default, it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially. Interest
accrues from the time judicial or extrajudicial demand is made on the surety. Considering that respondent
failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the
extrajudicial demand of petitioner was sent on 5 June 2000 interest must start to run from the time
petitioner sent its first demand letter (5 June 2000).

As to the interest rate to be imposed, Nacar v. Gallery Frames modified Eastern Shipping v. CA in
relation to BangkoSentral Monetary Board Circular 799 (S. 2013): (1) When the obligation is breached,
and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 6% per annum to be computed from default. (2) When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.

54
 MANUEL D. YNGSON, JR. (in his capacity as the Liquidator of ARCAM & COMPANY, INC.),
vs. PHILIPPINE NATIONAL BANK
[G.R. No. 171132. August 15, 2012]
By: Ron Juko C. Dacudao

Doctrine: The right to foreclose a mortgage is merely suspended upon the appointment of a management
committee or rehabilitation receiver or upon the issuance of a stay order by the trial court. The creditor-
mortgagee may exercise his right to foreclose the mortgage upon the termination of the rehabilitation
proceedings or upon the lifting of the stay order.

FACTS.

ARCAM & Company, Inc. (ARCAM) applied for and was granted a loan by the Philippine National
Bank (PNB). To secure the loan, ARCAM executed a Real Estate Mortgage over a parcel of land.
ARCAM, however, defaulted on its obligations to PNB due to financial reverses. Subsequently, ARCAM
filed before the SEC a Petition for Rehabilitation and Suspension of Payments, which was approved.
After some time, the SEC ruled that ARCAM can no longer be rehabilitated. Thus, the SEC decreed that
ARCAM be dissolved and placed under liquidation. With this development, PNB initiated a foreclosure
case. Thus, ARCAM filed with the SEC a Motion for the Issuance of a TRO to enjoin the foreclosure sale
of its assets. ARCAM argued that the prohibition against foreclosure subsisted during liquidation because
payment of all of ARCAM’s obligations was proscribed except those authorized by the Commission.
Moreover, ARCAM asserted that the mortgaged assets should be included in the liquidation and the
proceeds shared with the unsecured creditors. Rule on ARCAM’s contention.

ISSUE: Whether or not creditor-mortgagee has the right to foreclose the mortgage during liquidation.

RULING.

The creditor-mortgagee has the right to foreclose the mortgage over a specific real property whether or
not the debtor-mortgagor is under insolvency or liquidation proceedings. The right to foreclose such
mortgage is merely suspended upon the appointment of a management committee or rehabilitation
receiver or upon the issuance of a stay order by the trial court. However, the creditor-mortgagee may
exercise his right to foreclose the mortgage upon the termination of the rehabilitation proceedings or upon
the lifting of the stay order.

Under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act
(FRIA) of 2010, the right of a secured creditor to enforce his lien during liquidation proceedings is
retained. Section 114 of said law thus provides:

SEC. 114. Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and
share in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien;

If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value exceeds the claim secured, the liquidator
may convey the property to the creditor and waive the debtor’s right of redemption upon
receiving the excess from the creditor;

55
 (2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the
proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable
laws.

In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the
mortgaged properties should be respected.

Nicanora Bucton vs Rural Bank of El Salvador

GR No. 179625, February 24, 2014
By: Naiza Mae N. delos Santos

(Real Mortgage – Principal to be held liable when indicated in Real Estate Mortgage)

Doctrine:

A mortgage executed by an authorized agent who signed in his own name without indicating that he acted
for and on behalf of his principal binds only the agent and not the principal.

Facts:

Nicanora Bucton (Bucton) owned a parcel of land covered by TCT No. T-54678 located in Dipolog City.
Her neighbor, Erlinda Concepcion (Concepcion) borrowed the said title on the pretext that the latter is
going to show it to an interested buyer. But instead of showing the document to Brian, she obtained a loan
in the amount of P50,000.00 from Rural Bank of El Salvador (the Bank) where the buyer works. As
security for the loan obtained, she mortgaged the land covered by the aforesaid title by executing an SPA
and a Real Estate Mortgage. Eventually, Concepcion lost her job and failed to pay the loan from the
Bank. The subject property was then foreclosed and sold in an auction sale in favor of the Bank.

Bucton filed a case for Annulment of Mortgage, Foreclose and SPA against Concepcion and the Bank.
The Bank, however, denied Bucton’s claim of forgery on the SPA. The court ruled in favor of
Concepcion and the Bank, stating that it was not convinced that the SPA was forged. The court declared
that although the Real Estate Mortgage did not indicate that Concepcion was signing for and in behalf of
her principal, Bucton is estopped from denying the liability since it was her negligence in handing over
her title to Concepcion that caused the loss.

Issues:

1) Whether or not the ruling of the court is proper. Decide on whether or not the Real Estate
Mortgage executed by Concepcion binds Bucton.
2) Decide whether or not the Bank is negligent and is liable for damages.

Held:

1) NO. The Real Estate Mortgage does not bind Nicanora Bucton since it was entered into by
Concepcion in her own personal capacity.

The law provides that in executing real estate mortgage, the name of the principal should be indicated in
order for the latter to be liable. In this case, the authorized agent failed to indicate in the mortgage that she
was acting for and on behalf of her principal. Granting arguendo that the SPA was valid, the real estate
mortgage would still not bind Bucton as it was signed by Concepcion in her personal capacity and not as
an agent of Bucton. Simply put, the real estate mortgage is void and unenforceable against Bucton.

2) YES. The bank acted with negligence and is therefore liable for damages. The law provides that
the words, “as attorney-in-fact of,” or “as agent of,” or “for and on behalf of,” are vital in order
for the principal to be bound by the acts of his agent. Without these words, any mortgage,

56
 although signed by the agent, cannot bind the principal as it is concerned to have been signed by
the agent in his personal capacity.

In the present case, Rural Bank of El Salvador has no one to blame but itself. Not only did it act with
undue haste when it granted and released the loan, it also acted negligently in preparing the real estate
mortgage as it failed to indicate that Concepcion was signing for it for and on behalf of the petitioner.
Hence, the bank is negligent and is liable for damages.

Philnico Industrial Corporation v. Privatization and Management Office

G.R. No. 199420, August 27, 2014
By: ISRAEL C. GUMA

DOCTRINE:

Article 1305 of the Civil Code allows contracting parties to establish such stipulation, clauses, terms,
and conditions as they may deem convenient, provided, however, that they are not contrary to law,
morals, good customs, public order, or public policy.
Pactum commissorium is among the contractual stipulations that are deemed contrary to law. It is
defined as “a stipulation empowering the creditor to appropriate the thing given as guaranty for the
fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further
formality, such as foreclosure proceedings, and a public sale.”

FACTS:

On May 10, 1996, Privatization and Management Office (PMO), Philnico Industrial Corp. (PCI), and
Philnico Processing Corp. (PPC) executed a contract, denominated as the Amended and Restated
Definitive Agreement (ARDA), which laid down the terms and conditions of the purchase and acquisition
by PIC from PMO of 22,500,000 shares of stock of PPC (representing 90% of ownership of PPC), as well
as receivables of PMO from PPC. Under the ARDA, PIC agreed to pay PMO the peso equivalent of
US$333,762,000.00 as purchase price, payable in installments and in accordance with the schedule also
set out in the ARDA.

Among the provisions of the ARDA relevant to the instant cases are sec. 2.04 which stipulates that as
security for the payment of the Purchase Price in accordance with the terms of this Agreement, the Buyer
shall pledge the Shares to the Seller and execute a pledge agreement (the “Pledge Agreement”) in favor of
the Seller. Also, a provision in the case of default under sec. 8.02 provides that in case of default under
Section 8.01(a), the title to the Existing Shares and the Converted Shares shall ipso facto revert to the
Seller without need of demand in case such payment default is not remedied by the Buyer within ninety
(90) days from the due date of the second installment.

In a letter dated November 6, 2002, PMO notified PIC that the latter had defaulted in the payment of
its obligations and demanded that PIC settle its unpaid amortizations in the total amount of
US$275,000.00 within 90 days, or on or about February 5, 2003, or else the PMO would enforce the
automatic reversion of the PPC shares of stock under Section 8.02 of the ARDA.

On February 4, 2003, a day before the deadline for payment set by PMO in its letters, PIC filed
before the RTC a Complaint for Prohibition against Reversion of Shares with Prayer for Writ of
Preliminary Injunction and/or Temporary Restraining Order, Suspension of Payment and Fixing of Period
of Payment, against PMO, PPC, and the PPC Corporate Secretary. On February 7, 2003, the RTC issued
a temporary restraining order (TRO), effective for 20 days, restraining PMO, PPC, and the PPC Corporate
Secretary from effecting the reversion of the 22,500,000 shares of stock of PPC. The RTC subsequently
issued an Order finding that said default cannot automatically result in the reversion of the shares of
stocks to PMO. The provision in the ARDA providing for ipso facto reversion of the shares of stock is
null and void for being a pactum commissorium.

57
 The Court of Appeals, in its Decision dated January 31, 2011, disagreed with the finding of the RTC
that the instant case involves a pactum commissorium.

ISSUE:

Whether or not Section 8.2 of the ARDA on the automatic reversion constitutes pactum
commissorium.

RULING:

Section 8.02 of the ARDA constitutes pactum commissorium and, thus, null and void for being
contrary to Article 2088 of the Civil Code.

Article 1305 of the Civil Code allows contracting parties to establish such stipulation, clauses, terms,
and conditions as they may deem convenient, provided, however, that they are not contrary to law,
morals, good customs, public order, or public policy.

Pactum commissorium is among the contractual stipulations that are deemed contrary to law. It is
defined as “a stipulation empowering the creditor to appropriate the thing given as guaranty for the
fulfillment of the obligation in the event the obligor fails to live up to his undertakings, without further
formality, such as foreclosure proceedings, and a public sale.” 33 It is explicitly prohibited under Article
2088 of the Civil Code which provides:

ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.

There are two elements for pactum commissorium to exist: (1) that there should be a pledge or
mortgage wherein a property is pledged or mortgaged by way of security for the payment of the
principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the
creditor of the thing pledged or mortgaged in the event of nonpayment of the principal obligation
within the stipulated period.
Both elements of pactum commissorium are present in the instant case: (1) By virtue of the
Pledge Agreement dated May 2, 1997, PIC pledged its PPC shares of stock in favor of PMO as
security for the fulfillment of the former’s obligations under the ARDA dated May 10, 1996 and
the Pledge Agreement itself; and (2) There is automatic appropriation as under Section 8.02 of the
ARDA, in the event of default by PIC, title to the PPC shares of stock shall ipso facto revert from
PIC to PMO without need of demand.

Bank of Commerce vs Flores

G.R. No. 174006 December 8, 2010
By: Cedric T. Gutierrez II

Topic: Continuing guaranty

Doctrine: A continuing guaranty is a recognized exception to the rule that an action to foreclose a
mortgage must be limited to the amount mentioned in the mortgage contract. A guaranty shall be
construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit
to the principal debtor to be used from time to time either indefinitely or until a certain period, especially
if the right to recall the guaranty is expressly reserved.

FACTS:

Respondents are the registered owners of a condominium unit in Quezon City. Respondents borrowed
money from petitioner bank in the amount of (P900,000.00). Respondents executed a Real Estate
Mortgage over the condominium unit as collateral, and the same was annotated at the back of the CCT.

58
Respondents again borrowed (P1,100,000.00) from petitioner bank, which was also secured by a
mortgage over the same property.

Respondents paid (P1,011,555.54), as evidenced by an Official Receipt issued by petitioner bank. On the
face of the receipt, it was written that the payment was "in full payment of the loan and interest."
Respondents then asked petitioner bank to cancel the mortgage annotations since the loans secured by the
real estate mortgage were already paid in full. However, the bank refused to cancel the same and
demanded payment of (P4,633,916.67), representing the outstanding obligation of respondents. Petitioner
bank applied for extra-judicial foreclosure of the mortgages over the condominium unit.

Respondents assailed the validity of the foreclosure and auction sale of the property. They averred that the
loans secured by the property had already been paid in full. Petitioner bank admitted that there were only
two (2) mortgage loans annotated at the back of the CCT, but denied that respondents had already fully
settled their outstanding obligations with the bank. It averred that several credit lines were granted by
petitioner bank that were secured by promissory notes executed by him, and which were either increased
or extended from time to time.

ISSUE:

Whether or not the real estate mortgage over the subject condominium unit is a continuing guaranty for
the future loans of respondent spouses despite the full payment of the principal loans annotated on the
title of the subject property.

HELD: The petition is meritorious.

A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage contract. A guaranty shall be construed as continuing
when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor
to be used from time to time either indefinitely or until a certain period, especially if the right to recall the
guaranty is expressly reserved.

In the instant case, the language of the real estate mortgage unambiguously reveals that the security
provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the
payment of the loans annotated at the back of the CCT, and as security for all amounts that respondents
may owe petitioner bank. It is well settled that mortgages given to secure future advance or loans are
valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument the intent
to secure future and other indebtedness can be gathered.

LIM VS. SECURITY BANK CORPORATION

G.R. No. 188539 March 12, 2014
By: Eisone Brix R. Manuales

Doctrine/s:

The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation v.

Petroleum Distributors & Service Corporation in this wise: A contract of suretyship is an agreement
whereby a party, called the surety, guarantees the performance by another party, called the principal or
obligor, of an obligation or undertaking in favor of another party, called the obligee. Although the
contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt
or duty of another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom.

59
 The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise: Comprehensive or continuing surety agreements are, in fact, quite commonplace
in present day financial and commercial practice. A bank or financing company which anticipates
entering into a series of credit transactions with a particular company, normally requires the projected
principal debtor to execute a continuing surety agreement along with its sureties. By executing such an
agreement, the principal places itself in a position to enter into the projected series of transactions with
its creditor; with such suretyship agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor.

Facts:

Petitioner executed a Continuing Suretyship in favor of Raul Arroyo to secure any and all types
of credit accommodation in the amount of P2,000,000.00 which is covered by a Credit
Agreement/Promissory Note. Said promissory note stated that the interest on the loan shall be 19% per
annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully paid
when due, an additional penalty of 2% per month of the total outstanding principal and interest due and
unpaid, shall be imposed.

The Continuing Suretyship executed by petitioner stipulated that the liability of the Surety is
solidary and not contingent upon the pursuit of the Bank of whatever remedies it may have against the
Debtor or the collaterals/liens it may possess. If any of the Guaranteed Obligations is not paid or
performed on due date the Surety shall, without need for any notice, demand or any other act or deed,
immediately become liable therefor and the Surety shall pay and perform the same.

As defined in the same document “Guaranteed Obligations" refers to the obligations of the
Debtor arising from all credit accommodations extended by the Bank to the Debtor, including increases,
renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all
obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and
records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in
enforcing any of its rights, powers and remedies under the Credit Instruments as defined herein below.

The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a
Notice of Final Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained
by Raul and Edwina Arroyo, including the interests and penalty fees amounting to P7,703,185.54, and
demanding payment thereof. For failure of petitioner to comply with said demand, respondent filed a
complaint for collection of sum of money against him and the Arroyo spouses.

RTC rendered judgment against petitioner. The RTC ordered Petiioner Lim to pay the principal
sum of two million pesos plus nineteen percent interest of the outstanding principal interest due and
unpaid to be computed from January 28, 1997 until fully paid, plus two percent interest per month as
penalty to be computed from February 28, 1997 until fully paid, four hundred thousand pesos as
attorney's fees, and thirty thousand pesos as litigation expenses.

Petitioner appealed to the CA, but the appellate court affirmed the RTC judgment with the
modification that interest be computed from August 1, 1997; the penalty should start only from August
28, 1997; the award of attorney's fees is set at 10% of the total amount due; and the award for litigation
expenses increased to P92,321.10.

Petitioner's motion for reconsideration of the CA Decision was.

Issue:

Whether or not petitioner may validly be held liable for the principal debtor's loan obtained six
months after the execution of the Continuing Suretyship.

Ruling:

60
 The nature of a suretyship is elucidated in Philippine Charter Insurance Corporation v.
Petroleum Distributors & Service Corporation in this wise:

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an obligation or undertaking in
favor of another party, called the obligee. Although the contract of a surety is secondary only to a
valid principal obligation, the surety becomes liable for the debt or duty of another although it
possesses no direct or personal interest over the obligations nor does it receive any benefit
therefrom.

This was explained in the case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass
Corporation, where it was written:

The surety's obligation is not an original and direct one for the performance of his own act, but
merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor
or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and
equally bound with the principal.
xxx

Thus, suretyship arises upon the solidary binding of a person deemed the surety with the principal
debtor for the purpose of fulfilling an obligation. A surety is considered in law as being the same party as
the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable.
xxx

In this case, what petitioner executed was a Continuing Suretyship, which the Court described in
Saludo, Jr. v. Security Bank Corporation as follows:

The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking
Corporation in this wise:

Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial
and commercial practice. A bank or financing company which anticipates entering into a series of credit
transactions with a particular company, normally requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement, the principal places
itself in a position to enter into the projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor.

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It
states that petitioner, as surety, shall, without need for any notice, demand or any other act or deed,
immediately become liable and shall pay "all credit accommodations extended by the Bank to the Debtor,
including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as
well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the
accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which
the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined hereinbelow." Such stipulations are valid and legal and constitute the law between the parties, as
Article 2053 of the Civil Code provides that "[a] guaranty may also be given as security for future debts,
the amount of which is not yet known; x x x." Thus, petitioner is unequivocally bound by the terms of the
Continuing Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan,
together with the interest and penalties due thereon, even if said loan was obtained by the principal
debtor even after the date of execution of the Continuing Suretyship.

BENJAMIN E. RAVAGO, Petitioner, v. METROPOLITAN BANK & TRUST COMPANY,

SUBSTITUTED BY BRIGHT VENTURES REALTY, INC., Respondents.
G.R. No. 188739, August 05, 2015

61
 By: Liljoy C. Udtohan

DOCTRINE:

At the outset, the Court agrees with the ruling of both the RTC and the CA that as early as the case
of China Banking Corporation v. Court of Appeals, this Court has already ruled that extrajudicial
foreclosures conducted by a notary public do not come within the coverage of the provisions of
Administrative Order No. 3 because they are not filed with the court.

FACTS:

Several times between October and December 1997, petitioner and his wife obtained loans from
respondent bank.The loans were secured by a real estate mortgage. Subsequently, petitioner and his wife
failed to pay their loan obligations. As a consequence, in February  1999, respondent bank initiated
extrajudicial foreclosure proceedings over the mortgaged property through a notary public. After
compliance with the requirements of notice and publication, the notary public conducted a foreclosure
sale of the subject lot on June 3, 1999 wherein respondent bank emerged as the highest bidder.
Respondent bank was subsequently able to obtain title over the disputed property in its name.

On October 12, 2001, petitioner and his wife filed a Complaint for Annulment of Notarial Foreclosure
Proceedings Including Auction Sale, Certificate of Sale and Consolidated Title with Damages and
Injunction. Petitioner and his wife alleged, among others, that respondent bank's  extrajudicial foreclosure
of the subject property by means of a notary public did not comply with the procedure provided for under
the provisions of Administrative Order No. 3, issued by the Supreme Court in October 1984. In its
answer, respondent bank contended that Administrative Order No. 3 is simply a directive for executive
judges in the management of courts within their respective administrative areas and that a petition for
foreclosure with a notary public is not within the contemplation of the said Administrative Order because
such petition is not filed with the court. As such, respondent bank argues that its non-compliance with the
said administrative order does not render the foreclosure proceedings null and void.

ISSUE:

1. Is the petition for extra-judicial foreclosure done and conducted by a Notary Public pursuant to
Act. 3135 exempt from the payment of docket fee?
2.  Is a notarial foreclosure which took place prior to 1991 exempt from the payment of docket
fee?

HELD:

At the outset, the Court agrees with the ruling of both the RTC and the CA that as early as the case
of China Banking Corporation v. Court of Appeals, this Court has already ruled thatextrajudicial
foreclosures conducted by a notary public do not come within the coverage of the provisions of
Administrative Order No. 3 because they are not filed with the court. This Court held, thus:

Moreover, Administrative Order No. 3 is a directive for executive judges and clerks of courts which,
under its preliminary paragraph is [i]n line with the responsibility of an Executive Judge, under
Administrative Order No. 6, dated June 30, 1975, for the management of courts within his administrative
area, included in which is the task of supervising directly the work of the Clerk of Court, who is also
the Ex-Officio Sheriff, and his staff, x xx, Surely, a petition for foreclosure with the notary public is
not within the contemplation of the aforesaid directive as the same is not filed with the court. At any
rate, Administrative Order No. 3 cannot prevail over Act No. 3135, as amended. It is an elementary
principle in statutory construction that a statute is superior to an administrative directive and the former
cannot be repealed or amended by the latter.

Indeed, a closer analysis of the provisions of Administrative Order No. 3, prior to its amendment, would
show that the said Order refers only to foreclosure proceedings conducted by the sheriff. However, this

62
Court subsequently introduced amendments to Administrative Order No. 3 by enacting A.M. No. 99-10-
05-0.

A comparative reading of the opening provisions of Administrative Order No. 3 and the amendatory
sections of A.M. No. 99-10-05-0 would show that the former did not contemplate foreclosures conducted
under the direction of a notary public.Pertinent provisions of Administrative Order No. 3 read, thus:

x xx    xxx     xxx

In line with the responsibility of an Executive Judge, under Administrative Order No. 6, dated June
30, 1975, for the management of courts within his administrative area, included in which is the task
of supervising directly the work of the Clerk of Court, who is also the Ex-Officio Sheriff, and his
staff, the undersigned, pursuant to a resolution of this Court dated September 18, 1984, sets forth the
procedure to be followed:

1. All applications for extra-judicial foreclosure of mortgage under Act. 3135, as amended by Act 4118,
and Act 1508, as amended, shall be filed with the Executive Judge, through the Clerk of Court who is also
the Ex-Officio Sheriff.
x xx    xxx    xxx

On the other hand, the relevant provisions of A.M. No. 99-10-05-0 read as follows:

x xx     xxx     xxx

In line with the responsibility of an Executive Judge under Administrative Order No. 6, dated June 30,
1975, for the management of courts within his administrative area, included in which is the task of
supervising directly the work of the Clerk of Court, who is also the Ex- Officio Sheriff, and his staff, and
the issuance of commissions to notaries public and enforcement of their duties under the law, the
following procedures are hereby prescribed in extrajudicial foreclosure of mortgages:

1. All applications for extra-judicial foreclosure of mortgage whether under the direction of the sheriff
or a notary public, pursuant to Act 3135, as amended by Act 4118, and Act 1508, as amended, shall be
filed with the Executive Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.

x xx     xxx     xxx

It can be gleaned from the amendatory provisions of A.M. No. 99-10-05-0 that, upon effectivity of the
said amendments on January 15, 2000, applications for extrajudicial foreclosures under the direction of a
notary public are already among those which are required to be filed with the Executive Judge.

Hence, it is clear that prior to the effectivity of A.M. No. 99-10-05-0, applications for notarial
foreclosures which are conducted by a notary public were not required to be filed with the court. This is
precisely the reason why the Court in the China Banking case held that extrajudicial foreclosures
conducted by a notary public do not come within the coverage of the provisions of Administrative Order
No. 3, which, among others, require the sheriff to receive and docket the application for extrajudicial
foreclosure and collect the prescribed filing fees.
In the present case, respondent filed its Petition For Extrajudicial Foreclosure of Real Estate Mortgage in
February 1999 while the foreclosure sale was conducted on June 3, 1999, both of which happened before
the effectivity of A.M. No. 99-10-05-0.

Finally, it bears to point out, that the requirement for the payment of legal fees with respect to requests for
extrajudicial foreclosure of real estate or chattel mortgage by both the sheriff or notary public is now
incorporated under the present Section 7(c), Rule 141 of the Rules of Court, as amended by A.M. No. 04-
2-04-SC, which took effect on August 16, 2004.

Spouses Nicasio C. Marquez And Anita J. Marquez, vs.

Spouses CarlitoAlindogAnd Carmen Alindog,

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 G.R. No. 184045, January 22, 2014
By: Marie Angelee V. Ygnacio

Doctrine:

A writ of possession duly applied for by said purchaser should issue as a matter of course, and
thus, merely constitutes a ministerial duty on the part of the court, however, this rule admits of an
exception that the possession of the mortgaged property may be awarded to a purchaser in an extra-
judicial foreclosure unless a third party is actually holding the property by adverse title or right but this
third party must hold the property by adverse title or right.

Facts:

Anita Marquez extended a P500k loan to a certain Benjamin Gutierrez. As security for the loan,
Gutierrez executed a Real Estate Mortgage over a parcel of land located in Tagaytay. When the latter
defaulted in the payment of the loan, Anita Marquez sought to extrajudicially foreclose the mortgage.
Being the highest bidder and upon failure of Gutierrez to redeem the property, title was consolidated in
the name of Anita J. Marquez, married to Nicasio C. Marquez, which, however, bore an annotation of
adverse claim in the names of respondents-spouses Carlito and Carmen Alindog (Sps. Alindog). Said
annotation was copied from an earlier annotation made only after the subject property’s mortgage to Sps.
Marquez.

Regional Trial Court

RTC granted Anita’s ex-parte petition and thereby directed the issuance of a writ of possession in
her favor.

After further proceedings on the injunction case, the RTC, through an Order 25 dated November
14, 2005, issued a writ of preliminary injunction enjoining Sps. Marquez from taking possession of the
subject property until after the controversy has been fully resolved on the merits

Court of Appeals
While Sps. Marquez concededly had a right to possess the subject property on account of the
consolidation of the title in their names, the CA nonetheless found no fault on the part of the RTC for
"proceeding with caution"38 in weighing the conflicting claims of the parties and subsequently issuing the
writ of preliminary injunction in Sps. Alindog’s favor

Issue:
Whether or not the CA erred in finding no grave abuse of discretion on the part of the RTC when
it issued the injunctive writ which enjoined Sps. Marquez from taking possession of the subject property.

Ruling:

YES. The procedure for extrajudicial foreclosure of real estate mortgage is governed by Act No. 3135, as
amended. 

The purchaser in an extra-judicial foreclosure sale is entitled to the possession of the property and
can demand that he be placed in possession of the same either during (with bond) or after the expiration
(without bond) of the redemption period therefor. A writ of possession duly applied for by said purchaser
should issue as a matter of course, and thus, merely constitutes a ministerial duty on the part of the court.
Any question regarding the regularity and validity of the sale (and the consequent cancellation of the writ)
is left to be determined in a subsequent proceeding as outlined in section 8. Such question is not to be
raised as a justification for opposing the issuance of the writ of possession, since, under the Act, the
proceeding for this is ex parte.

The use of discretion and the performance of a ministerial act are mutually exclusive.

The ministerial issuance of a writ of possession in favor of the purchaser in an extra-judicial

foreclosure sale, however, admits of an exception. Section 33, Rule 39 of the Rules of Court pertinently
provides that the possession of the mortgaged property may be awarded to a purchaser in an extra-judicial
foreclosure unless a third party is actually holding the property by adverse title or right.

64
 The phrase ‘a third party who is actually holding the property adversely to the judgment obligor’
contemplates a situation in which a third party holds the property by adverse title or right, such as that of
a co-owner, tenant or usufructuary. The co-owner, agricultural tenant, and usufructuary possess the
property in their own right, and they are not merely the successor or transferee of the right of possession
of another co-owner or the owner of the property. The third person must therefore claim a right superior
to that of the original mortgagor

In this case, it is clear that the issuance of a writ of possession in favor of Sps. Marquez, who had
already consolidated their title over the extra-judicially foreclosed property, is merely ministerial in
nature. The general rule as herein stated – and not the exception found under Section 33, Rule 39 of the
Rules – should apply since Sps. Alindog hinged their claim over the subject property on their purported
purchase of the same from its previous owner, i.e., Sps. Gutierrez (with Gutierrez being the original
mortgagor). Accordingly, it cannot be seriously doubted that Sps. Alindog are only the latter’s (Sps.
Gutierrez) successors-in-interest who do not have a right superior to them.

Therefore, RTC committed grave abuse of discretion when it issued the injunctive writ against
Sps Marquez.

PETITION IS GRANTED.

Philippine National Bank v. Sps. Bernard and CresenciaMarañon

G.R.No. 189316 July 1, 2013.
By: Rhea C. Yray
DOCTRINE:

Real Mortgage; includes all natural or civil fruits and improvements found on the mortgaged property
when the secured obligation becomes due; in case of non-payment of the secured debt, foreclosure
proceedings shall cover not only the hypothecated property but all its accessions and accessories as well;
indispensable requisite that mortgagor be the absolute owner of the encumbered property. Rent, as an
accessory, follows the principal. In fact, when the principal property is mortgaged, the mortgage shall
include all natural or civil fruits and improvements found thereon when the secured obligation becomes
due as provided in Article 2127 of the Civil Code, viz:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor, or it passes
into the hands of a third person.

FACTS:

The case involves a 152-square meter parcel of land located at Cuadra-Smith Streets, Downtown,
Bacolod (subject lot) erected with a building leased by various tenants. The subject lot was among the
properties mortgaged by Spouses Rodolfo and Emilie Montealegre (Spouses Montealegre) to PNB as a
security for a loan. In their transactions with PNB, Spouses Montealegre used Transfer Certificate of Title
(TCT) over the subject lot purportedly registered in the name of Emilie Montealegre (Emilie).When
Spouses Montealegre failed to pay the loan, PNB initiated foreclosure proceedings on the mortgaged
properties, including the subject lot. In the auction sale held on August 16, 1991, PNB emerged as the
highest bidder.

Before the expiration of the redemption period or on July 29, 1992, Spouses Marañon filed before
the RTC a complaint for Annulment of Title, Reconveyance and Damages against Spouses Montealegre,
PNB, the Register of Deeds of Bacolod City and the Ex-Officio Provincial Sheriff of Negros Occidental.
The complaint alleged that Spouses Marañon are the true registered owners of the subject lot which was
illegally cancelled under the name of Emilie who used a falsified Deed of Sale bearing the forged
signatures of Spouse Marañon to effect the transfer of title to the property in her name.

65
 RTC rendered its Decision in favor of the respondents after finding, based on the expert
testimony of Colonel Rodolfo Castillo, Head of the Forensic Technology Section of Bacolod City
Philippine National Police, that the signatures of Spouses Marañon in the Deed of Sale presented by
Spouses Montealegre before the Register of Deeds to cause the cancellation of TCT No. T-129577 were
forged. Hence, the RTC concluded the sale to be null and void and as such it did not transfer any right or
title in law. PNB was adjudged to be a mortgagee in good faith whose lien on the subject lot must be
respected.

Neither of the parties sought a reconsideration of the above decision or any portion thereof nor
did they elevate the same for appellate review.What precipitated the controversy at hand were the
subsequent motions filed by Spouses Marañon for release of the rental payments deposited with the Clerk
of Court and paid to PNB by Tolete.

On June 13, 2006, Spouses Marañon filed an Urgent Motion for the Withdrawal of Deposited
Rentals praying that the P144,000.00 rental fees deposited by Tolete with the Clerk of Court be released
in their favor for having been adjudged as the real owner of the subject lot. The RTC granted the motion.
On September 5, 2006, Spouses Marañon again filed with the RTC an Urgent Ex-Parte Motion for
Withdrawal of Deposited Rentals praying that the P30,000.00 rental fees paid to PNB by Tolete on
December 12, 1999 be released in their favor. The said lease payments were for the five (5)-month period
from August 1999 to December 1999 at the monthly lease rate of P6,000.00.The RTC granted the motion
reasoning that pursuant to its Decision declaring Spouses Marañon to be the true registered owners of the
subject lot, they are entitled to its fruits.

Aggrieved, PNB sought recourse with the CA via a petition for certiorari and mandamusclaiming
that as the lawful owner of the subject lot per the RTC’s judgment, it is entitled to the fruits of the same
such as rentals paid by tenants. CA denied the petition and affirmed the RTC’s judgment ratiocinating
that not being parties to the mortgage transaction between PNB and Spouses Montealegre, Spouses
Marañon cannot be deprived of the fruits of the subject lot as the same will amount to deprivation of
property without due process of law. The RTC further held that PNB is not a mortgagee in good faith
because as a financial institution imbued with public interest, it should have looked beyond the certificate
of title presented by Spouses Montealegre and conducted an inspection on the circumstances surrounding
the transfer to Spouses Montealegre.

ISSUE:
Whether or not is PNB entitled to fruits of the disputed property.

HELD:

No. The Supreme Court denied the petition.

Rent is a civil fruit that belongs to the owner of the property producing it by right of accession.
The rightful recipient of the disputed rent in this case should be thus the owner of the lot at the time the
rent accrued. It is beyond question that spouses Maranon never lost ownership over the subject lot, and
that technically, there is no juridical tie created by a valid mortgage contract that binds PNB to the subject
lot because the mortgagors Montealegre were not the true owners. PNB’s lien as a mortgagee in good
faith pertains to the subject lot alone and not on the erected building which was not foreclosed and still
remained to be a property of Maranon. Thus, PNB’s claim for the rents paid by the tenants has no basis.

Rent, as an accessory follows the principal. In fact, when the principal property is mortgaged, the
mortgage shall include all natural or civil fruits and improvements found thereon when the secured
obligation becomes due as provided in Article 2127 of the Civil Code, viz:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor, or it passes
into the hands of a third person.

66
 Otherwise stated, absent an adverse claimant or any evidence to the contrary, all accessories and
accessions accruing or attached to the mortgaged property are included in the mortgage contract and may
thus also be foreclosed together with the principal property in case of non-payment of the debt secured.

Nonetheless, since the present recourse stemmed from a mere motion claiming ownership of rent and not
from a main action for annulment of the foreclosure sale or of its succeeding incidents, the Court cannot
proceed to make a ruling on the bearing of the CA's Decision dated June 18, 2008 to PNB's standing as a
purchaser in the public auction. Such matter will have to be threshed out in the proper forum.

All told, albeit the dispositive portions of the assailed CA decision and resolution are differently
premised, they ought to be upheld as they convey the similar conclusion that Spouses Marañon are the
rightful owners of the rent earned by the building on the subject lot.

LEASE

ONE NETWORK RURAL BANK, INC.,vs. DANILO G. BARIC

G.R. No. 193684   March 5, 2014
By: Anna Mae R. Avenido

Principle:
The registered owner of the property may transfer his title at any time and the lease
merely follows the property as a lien or encumbrance. A purchaser or transferee may not be
implicated or found guilty unless it actually took part in the commission of illegal acts.

Facts:
Jaime Palado (Palado) was the registered owner of real property with a building
containing commercial spaces for lease (subject property). Respondent Danilo G. Baric (Baric)
was a lessee therein, operating a barber shop on one of the commercial spaces. The lease was
governed by a written agreement, or "Kasabutan”

In the meantime, it appears that the building was demolished.

Baric then filed a case for forcible entry with prayer for injunctive relief against Palado
and herein petitioner One Network Rural Bank, Inc. (Network Bank), In his Amended
Complaint, Baric alleged that he had been occupying the leased space since 1994; that in 2000,
he renovated the leased space with Palado’s consent and knowledge, and the renovation cost
him P27,000.00; that in December 2000, Palado sent him a notice to vacate the premises; that
he filed a Complaint with the Barangay Chairman of Piapi; that on January 29, 2001, Palado
enclosed and fenced the premises and thus prevented him from entering and using the same;
that he reported the incident to the police and caused the same to be recorded in the police
blotter; that he was thus excluded from the leased premises by means of strategy, violence,
force and threat. Baric thus prayed that injunctive relief be granted to restrain Palado and
Network Bank from depriving him of possession; that he be restored in his possession of the
commercial space, and that any structure built thereon in the meantime be demolished.

Baric’s Amended Complaint was prompted by Network Bank’s subsequent purchase on

April 25, 2001 of the subject property from Palado, In its Answer (With Counterclaim and
Crossclaim), Network Bank essentially claimed that as a buyer in good faith and new owner of
the subject property, it should not be made liable.

Palado, on the other hand, claimed in his Answer with Counterclaim that Baric had no
cause of action against him; that Baric’s lease was merely on a month-to-month basis; that
Baric voluntarily vacated the leased premises and posted a signboard informing the public that
his barber shop had transferred to the Agdao Public Market; that the premises were fenced and
enclosed for security and safety reasons after Baric had left; that Baric and the other lessees
were given until January 25, 2001 to vacate the premises; that on January 18, 2001, Baric

67
complained before the Lupon, but on the scheduled January 19 and 24, 2001 conciliation
hearings, he failed to attend.

MTCC dismissed they Baric’s complaint for forcible entry. RTC sustained the decision
but the Court of Appeals reversed the ruling making Network bank solidarily liable with Palado.

Issue:
Whether or not Network Bank can be held solidarily liable with the owner of the land

Ruling:
Network Bank did not violate any of Baric's rights; it was merely a purchaser or transferee of the
property. Surely, it is not prohibited from acquiring the property even while the forcible entry
case was pending, because as the registered owner of the subject property, Palado, may
transfer his title at any time and the lease merely follows the property as a lien or encumbrance.
Any invasion or violation of Baric's rights as lessee was committed solely by Palado, and
Network Bank may not be implicated or found guilty unless it actually took part in the
commission of illegal acts, which does not appear to be so from the evidence on record. On the
contrary, it appears that Baric was ousted through Palado's acts even before Network Bank
acquired the subject property or came into the picture.

Koppel INC. vs Makati Rotary Club Foundation, INC

G.R. No. 198075, September 4, 2013
By: John Paul C. Canasa

Doctrine:

Under the doctrine of separability, the arbitration clause is considered independent of the
main contract.

Facts:

FKI donated a parcel of land in favor of the respondent subject to certain conditions. One
of its conditions is that the property be leased back to FKI for a period of 25 years renewable for
another period of 25 years upon their mutual agreement. In the 2000 lease contract contained
an arbitration clause enforceable in the event the parties come to a disagreement about the
interpretation, application, and execution of the lease. Upon the expiration of the said contract,
FKI and the respondent agreed to renew the contract for another 5 years and obliged the FKI to
make yearly donations of money to the respondent. FKI sold all its rights and properties in favor
of the petitioner, the latter refused to pay rents and donations. Petitioner insisted on invoking the
arbitration clause found in the contract to resolve the matter.

Issue:

Whether or not arbitration clause can be invoked to apply in the present case.

Ruling:

Yes. The Court decided in favor of the petitioner and ruled that under the doctrine of
separability an arbitration agreement is considered as independent of the main contract. Being

68
separate contract in itself the arbitration agreement may thus be invoked regardless of the
possible nullity or invalidity of the main contract.

COMGLASCO CORPORATION/AGUILA GLASS,

vs. SANTOS CAR CHECK CENTER CORPORATION,
G.R. No. 202989. March 25, 2015.
By: Kimberly Marie F. Esmeña

PRINCIPLE:

“The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation "to
give"; hence, it is not covered within the scope of Article 1266. Xxx the Court held that the payment of
lease rentals does not involve a prestation "to do" envisaged in Articles 1266 and 1267 which has been
rendered legally or physically impossible without the fault of the obligor-lessor. Article 1267 speaks of a
prestation involving service which has been rendered so difficult by unforeseen subsequent events as to
be manifestly beyond the contemplation of the parties.”

FACTS:

On August 16, 2000, respondent Santos Car Check Center Corporation (Santos), owner of a showroom
located at 75 Delgado Street, in Iloilo City, leased out the said space to petitioner Comglasco Corporation
(Comglasco), an entity engaged in the sale, replacement and repair of automobile windshields, for a
period of five years at a monthly rental of P60,000.00 for the first year, P66,000.00 on the second year,
and P72,600.00 on the third through fifth years.

On October 4, 2001, Comglasco advised Santos through a letter that it was pre-terminating their lease
contract effective December 1, 2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years.

Comglasco vacated the leased premises and stopped paying any further rentals. Santos sent several
demand letters, which Comglasco completely ignored. On September 15, 2003, Santos sent its final
demand letter, 3 which Comglasco again ignored. On October 20, 2003, Santos filed suit for breach of
contract.

Judgment was then rendered by the RTC in favor of Santos and against Comglasco which was affirmed
by the CA.
ISSUE:
WON Comglasco’s contention in terminating its lease contract with the Respondent is tenable.

RULING:

The petition is denied.

In Philippine National Construction Corporation vs CA (PNCC), which also involves the termination of a
lease of property by the lessee "due to financial, as well as technical, difficulties," the Court ruled:

The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation "to give"; hence, it is not covered within the scope of Article 1266. At any rate,
the unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in said article. Besides, petitioner failed to state specifically
the circumstances brought about by "the abrupt change in the political climate in the
country" except the alleged prevailing uncertainties in government policies on
infrastructure projects. The principle ofrebus sic stantibus neither fits in with the facts of
the case. Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases to exist. This
theory is said to be the basis of Article 1267 of the Civil Code, which provides:

Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.

69
 This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle rebus sic stantibus, which would endanger the
security of contractual relations. The parties to the contract must be presumed to have
assumed the risks of unfavorable developments. It is therefore only in absolutely
exceptional changes of circumstances that equity demands assistance for the debtor.

In this case, petitioner wants this Court to believe that the abrupt change in the political
climate of the country after the EDSA Revolution andits poor financial condition
"rendered the performance of the lease contract impractical and inimical to the corporate
survival of the petitioner." This Court cannot subscribe to this argument. As pointed out
by private respondents:
xxx xxx xxx
Anent petitioner's alleged poor financial condition, the same will neither release
petitioner from the binding effect of the contract of lease. As held in Central Bank vs CA,
cited by private respondents, mere pecuniary inability to fulfill an engagement does not
discharge a contractual obligation, nor does it constitute a defense to an action for
specific performance.

Relying on Article 1267 of the Civil Code to justify its decision to preterminate its lease with Santos,
Comglasco invokes the 1997 Asian currency crisis as causing it much difficulty in meeting its obligations.
But in PNCC,the Court held that the payment of lease rentals does not involve a prestation "to do"
envisaged in Articles 1266 and 1267 which has been rendered legally or physically impossible without
the fault of the obligor-lessor. Article 1267 speaks of a prestation involving service which has been
rendered so difficult by unforeseen subsequent events as to be manifestly beyond the contemplation of the
parties. To be sure, the Asian currency crisis befell the region from July 1997 and for sometime
thereafter, but Comglasco cannot be permitted to blame its difficulties on the said regional
economic phenomenon because it entered into the subject lease only on August 16, 2000, more than
three years after it began, and by then Comglasco had known what business risks it assumed when
it opened a new shop in Iloilo City.

This situation is no different from the Court's finding in P N C C wherein PNCC cited the assassination of
Senator Benigno Aquino Jr. (Senator Aquino) on August 21, 1983 and the ensuing national political and
economic crises as putting it in such a difficult business climate that it should be deemed released from its
lease contract. The Court held that the political upheavals, turmoils, almost daily mass demonstrations,
unprecedented inflation, and peace and order deterioration which followed Senator Aquino's death were a
matter of judicial notice, yet despite this business climate, PNCC knowingly entered into a lease with
therein respondents on November 18, 1985, doing so with open eyes of the deteriorating conditions of the
country. The Court rules now, as in P N C C , that there are no "absolutely exceptional changes of
circumstances that equity demands assistance for the debtor."

SPOUSES RICARDO AND ELENA C. GOLEZ v. MELITON NEMEÑO,

G.R. No. 178317, September 23, 2015
By: Marymar L. Jurolan
Doctrine:

The trial court ruled that respondent did not become the co-owner of the subject building before
it was burned down. It held that ownership will only pertain to him as soon as the amount agreed upon
under the contract shall have been fully paid. It further held that under the law, it would still be
necessary for petitioners to deliver the building to respondent in order that acquisition of the real right of
ownership can take place. It noted that not only was the amount agreed upon under the contract not yet
fully paid, there was no delivery of the building at all to respondent.

Facts:

Respondent is the registered owner of a commercial lot located in Molave, Zamboanga del Sur.
On May 31, 1989, respondent entered into a Lease Contract6 over a portion of Lot No. 7728 with
petitioners as "lessees." On May 23, 1992, the building subject of the lease contract was burned down.

70
 Because of the destruction of the building, respondent, on May 29, 1992, sent a letter to
petitioners demanding the accumulated rentals for the leased property from March 17, 1989 to June 17,
1992 totaling P78,000.00. As the demand was left unheeded, respondent filed a complaint for collection
of rentals plus damages before the Molave RTC.

Respondent alleged that Ricardo is the proximate cause of the fire that razed the building to the
ground. He also claimed that without his knowledge, petitioners insured the building with two insurance
companies for face values of more than its cost.

Petitioners, for their part, admitted the execution of the contract of lease but dispute their liability
to pay respondent rentals. They contended that under the contract of lease, the rental payment is
amortized over the cost of the subject building, thus, respondent had already become its co-owner who
must suffer the loss of his property. They also denied liability for the burning of the building contending
that it has been destroyed by a fortuitous event. They admitted though that they insured the building
beyond their insurable interest over it.

The trial court ruled that respondent did not become the co-owner of the subject building before it
was burned down. It held that ownership will only pertain to him as soon as the amount agreed upon
under the contract shall have been fully paid. It further held that under the law, it would still be necessary
for petitioners to deliver the building to respondent in order that acquisition of the real right of ownership
can take place. It noted that not only was the amount agreed upon under the contract not yet fully paid,
there was no delivery of the building at all to respondent. It ruled that the building was still wholly owned
by petitioners at the time the same was gutted by fire and thus, they should be the only ones to suffer the
loss.

The trial court likewise noted that petitioners have never paid respondent rent for the leased
premises. Since they can no longer deliver the building which the contract obliged them to deliver, the
trial court ruled that they are legally obliged to pay the rentals for their use and enjoyment of the leased
premises to prevent unjust enrichment on the part of petitioners.

Aggrieved, petitioners appealed the trial court's decision to the CA. It affirmed the decision of
the trial court in all other respects. It held that the ownership of the subject building still pertains to
petitioners and therefore, they must solely bear the loss. The CA also ruled that the fact that the building
was destroyed before it was delivered to respondent does not free petitioners from paying back rentals. It
held that petitioners cannot use respondent's land and deprive him of rents due him, otherwise, it would be
a case of unjust enrichment at the expense of respondent.

Issue:

Are petitioners liable to pay respondent for back rentals?

Held:

This Court finds no reason to depart from the ruling of the courts a quo that petitioners should
pay respondent for back rentals. There is no dispute that the contract entered into by the parties is one of
lease. True, it had some modifications such that instead of paying the rent in the form of money,
petitioners will withhold such payment and will apply the accumulated rent to the cost of the building
they built on the leased property. Thereafter, at the end of the lease period or until such time the cost of
the building has been fully covered by the rent accumulated, petitioners, as lessees will transfer the
ownership of said building to respondent.

Unfortunately, the subject building was gutted down by fire. However, the destruction of the
building should not in any way be made a basis to exempt petitioners from paying rent for the period they
made use of the leased property. Otherwise, this will be a clear case of unjust enrichment. As held in P. C.
Javier & Sons, Inc. v. Court of Appeals:

x x x The fundamental doctrine of unjust enrichment is the transfer of value without just cause or
consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment

71
on the part of the plaintiff; and lack of cause. The; main objective is to prevent one to enrich himself at
the expense of another. It is commonly accepted that this doctrine simply means that a person shall not be
allowed to profit or enrich himself inequitably at another's expense.

In the instant case, there is no dispute that petitioners used the property for several years for their
own benefit having operated a restaurant thereon. Therefore, it would be the height of injustice to deprive
respondent of compensation due him on the use of his property by petitioners. The fact that the parties
agreed to a different mode of payment - in this case, a building - does not in any way exempt petitioners
from paying compensation due to respondent for the use of the latter's property because the building was
destroyed.

While we sustain the award of back rentals in favor of respondent, we do not agree with the
amount imposed by the courts a quo. Petitioners should only be liable for rent during the period within
which they were in possession of the leased property, Respondent himself testified that petitioner Ricardo
stayed in the building on the leased premises just before it was burned down. There was no evidence
submitted to prove that petitioners were in possession of the leased property after the fire. Therefore,
petitioners should be made to pay rent until that time only. To order petitioners to pay for back rentals
equivalent to the cost of the building is in the same way, unjust enrichment this time on the part of
respondent considering that the rent due for the period petitioners occupied the leased premises is way
below the cost of the building.

Jusayan vs Sombilla
G.R. No. 163928, January 21, 2015
By: Mylene M. Ocat

Doctrine/s:

“The elements of agricultural tenancy to wit: (1) the object of the contract or the relationship is
an agricultural land that is leased or rented for the purpose of agricultural production; (2) the size of the
landholding is such that it is susceptible of personal cultivation by a single person with the assistance of
the members of his immediate farm household; (3) the tenant-lessee must actually and personally till,
cultivate or operate the land, solely or with the aid of labor from his immediate farm household; and (4)
the landlord-lessor, who is either the lawful owner or the legal possessor of the land, leases the same to
the tenant-lessee for a price certain or ascertainable either in an amount of money or produce.”

Facts:

Wilson Jesena owned four parcels of land situated in New Lucena, Iloilo. On June 20, 1970, he
entered into an agreement with respondent Jorge Sombilla wherein Jorge was designated as agent to
supervise the tilling and farming of his riceland in crop year 1970-1971.

On August 20, 1971, before the expiration of the agreement, Wilson sold the four parcels of land
to Timoteo Jusayan. Jorge and Timoteo verbally agreed that Jorge would retain possession of the parcels
of land and would deliver 110 cavans of palay annually to Timoteo without need for accounting of the
cultivation expenses provided that Jorge would pay the irrigation fees.

From 1971 to 1983, Timoteo and Jorge followed the arrangement. However, in 1975, the parcels
of land were transferred in the names of Timoteo’s sons. In 1984, Timoteo sent several letters to Jorge
terminating his administration and demanding the return of the possession of the parcels of land.

Due to the failure of Jorge to render accounting and to return the possession of the parcels of land
despite demands, Timoteo filed on June 30, 1986 a complaint for recovery of possession and accounting
against Jorge in the RTC.

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 Jorge asserted that he enjoyed security of tenure as the agricultural lessee of Timoteo and he
could not be dispossessed of his landholding without valid cause.

RTC upheld the contractual relationship of agency between Timoteo and Jorge and ordered the
delivery of the possession of the parcels of land. CA reversed the RTC and dismissed the case. It declared
that the contractual relationship between the parties was one of agricultural tenancy and the demand for
the delivery of his share in the harvest and the payment of irrigation fees constituted an agrarian dispute.

Issue:

Whether or not the relationship between Jeorge and Timoteo is that of agency or agricultural
leasehold.

Held:
Agricultural leasehold was the relationship between the parties.

In agency, the agent binds himself to render some service or to do something in representation or
on behalf of the principal, with the consent or authority of the latter. The basis of the civil law relationship
of agency is representation, the elements of which are, namely: (a) the relationship is established by the
parties’ consent, express or implied; (b) the object is the execution of a juridical act in relation to a third
person; (c) the agent acts as representative and not for himself; and (d) the agent acts within the scope of
his authority. 

On the other hand, in the agricultural lease, also termed as a leasehold tenancy, the physical
possession of the land devoted to agriculture is given by its owner or legal possessor (landholder) to
another (tenant) for the purpose of production through labor of the latter and of the members of his
immediate farm household, in consideration of which the latter agrees to share the harvest with the
landholder, or to pay a price certain or ascertainable, either in produce or in money, or in both.

Hence, the claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had
fashioned with Jorge. By assenting to Jorge’s possession of the land sans accounting of the cultivation
expenses and actual produce of the land provided that Jorge annually delivered to him 110 cavans of
palay and paid the irrigation fees belied the very nature of agency, which was representation. The verbal
agreement between Timoteo and Jorge left all matters of agricultural production to the sole discretion of
Jorge and practically divested Timoteo of the right to exercise his authority over the acts to be performed
by Jorge.

VIEGELY SAMELO versusMANOTOK SERVICES, INC.

G.R. No. 170509  June 27, 2012
By: Dave Edward V. Parilla

DOCTRINE: An implied new lease or tacita reconduccion will set in when the following requisites are
found to exist: a) the term of the original contract of lease has expired; b) the lessor has not given the
lessee a notice to vacate; and c) the lessee continued enjoying the thing leased for fifteen days with the
acquiescence of the lessor.

FACTS:

Manotok Services, Inc. (respondent) entered into a contact with the petitioner for the lease of a
portion of Lot 9-7, Block 2913, described as Lot 4, and Block 15 (subject premises).The lease contract
was for a period of one (1) year, with a monthly rental of P3,960.00. After the expiration of the lease
contract on December 31, 1997, the petitioner continued occupying the subject premises without paying

73
the rent.4 On August 5, 1998, the respondent, thru its President Rosa Manotok, sent a letter to the
petitioner demanding that she vacate the subject premises and pay compensation for its use and
occupancy.5 The petitioner, however, refused to heed these demands.

  The respondent filed a complaint for unlawful detainer against the petitioner before the
Metropolitan Trial Court (MeTC), Branch 3, Manila, docketed as Civil Case No. 16158-CV.

In her answer, the petitioner alleged that the respondent had no right to collect rentals because the
subject premises are located inside the property of the Philippine National Railways (PNR). She also
added that the respondent had no certificate of title over the subject premises. The petitioner further
claimed that her signature in the contract of lease was obtained through the respondent’s
misrepresentation. That respondent did not give the petitioner a notice to vacate upon the expiration of the
lease contract in December 1997 (the notice to vacate was sent only on August 5, 1998), and the latter
continued enjoying the subject premises for more than 15 days, without objection from the respondent.

The Regional Trial Court dismissed the complaint for unlawful detainer, and held that respondent
did not give the petitioner a notice to vacate upon the expiration of the lease contract, and the latter
continued enjoying the subject premises for more than 15 days, without objection from the respondents.
An implied new lease was therefore created pursuant to Article 1670 of the Civil Code.

The Court of Appeals reversed and set aside the decision of the RTC.

Hence the petition.

ISSUE:

Whether or not there is an implied new lease in the instant case.

HELD:

An implied new lease was therefore created pursuant to Article 1670 of the Civil Code, which
expressly provides:

Article 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen
days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously
been given, it is understood that there is an implied new lease, not for the period of the original contract,
but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be
revived.

"An implied new lease or tacita reconduccion will set in when the following requisites are found to exist:
a) the term of the original contract of lease has expired; b) the lessor has not given the lessee a notice to
vacate; and c) the lessee continued enjoying the thing leased for fifteen days with the acquiescence of the
lessor."20 As earlier discussed, all these requisites have been fulfilled in the present case.

Article 1687 of the Civil Code on implied new lease provides:

Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid daily.

It bears emphasis that the respondent did not give the petitioner a notice to vacate upon the expiration of
the lease contract in December 1997 (the notice to vacate was sent only on August 5, 1998), and the latter
continued enjoying the subject premises for more than 15 days, without objection from the respondent.
By the inaction of the respondent as lessor, there can be no inference that it intended to discontinue the
lease contract.

Since the rent was paid on a monthly basis, the period of lease is considered to be from month to
month, in accordance with Article 1687 of the Civil Code. "[A] lease from month to month is considered
to be one with a definite period which expires at the end of each month upon a demand to vacate by the

74
lessor."21 When the respondent sent a notice to vacate to the petitioner on August 5, 1998, the tacita
reconduccion was aborted, and the contract is deemed to have expired at the end of that month. "[A]
notice to vacate constitutes an express act on the part of the lessor that it no longer consents to the
continued occupation by the lessee of its property." 22 After such notice, the lessee’s right to continue in
possession ceases and her possession becomes one of detainer.

Mamaril vs. BSP,

GR No. 179382, January 14, 2013
By: Arnel R. Patatag

Doctrine:

The act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease. In relation
thereto, Article 1664 of the same Code states that "the lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing leased; but the lessee shall have a
direct action against the intruder.

FACTS:

Spouses Mamaril are jeepney operators. They would park their six (6) passenger jeepneys every night at
the Boy Scout of the Philippines' (BSP) compound for a fee of P300.00 per month for each unit. One
evening, while all these vehicles were parked inside the BSP compound one of the vehicles was missing
and was never recovered. According to the security guards Peña and Gaddi of AIB Security Agency,
Inc. (AIB) with whom BSP had contracted for its security and protection, a male person who looked
familiar to them took the subject vehicle out of the compound.

The spouses filed a complaint for the loss of the subject vehicle against BSP, AIB and the security guards.
BSP denied any liability contending that Sps. Mamaril directly deal with AIB with respect to the manner
by which the parked vehicles would be handled, but the parking ticket itself expressly stated that the
"Management shall not be responsible for loss of vehicle or any of its accessories or article left therein."

BSP was adjudged severally and jointly liable with AIB and the security guards contending that the
Guard Service Contract it entered into with AIB offered protection to all properties inside the BSP
premises, which necessarily included Sps. Mamaril's vehicles. On Appeal, the CA absolved BSP
contending that the agreement between Sps. Mamaril and BSP was substantially a contract of lease
whereby the former paid parking fees to the latter for the lease of parking slots. As such, the lessor, BSP,
was not an insurer nor bound to take care and/or protect the lessees' vehicles

Issue: Whether or not BSP is liable?

Ruling:

No. The Court concurs with the finding of the CA that the contract between the parties herein was one of
lease as defined under Article 164326 of the Civil Code. It has been held that the act of parking a vehicle
in a garage, upon payment of a fixed amount, is a lease. Even in a majority of American cases, it has
been ruled that where a customer simply pays a fee, parks his car in any available space in the lot, locks
the car and takes the key with him, the possession and control of the car, necessary elements in bailment,
do not pass to the parking lot operator, hence, the contractual relationship between the parties is one of
lease.

On this score, Article 1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to deliver the
thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) to
make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which
it has been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration of the contract. In relation thereto,
Article 1664 of the same Code states that "the lessor is not obliged to answer for a mere act of trespass
which a third person may cause on the use of the thing leased; but the lessee shall have a direct action
against the intruder. Here, BSP was not remiss in its obligation to provide Sps. Mamaril a suitable parking

75
space for their jeepneys as it even hired security guards to secure the premises; hence, it should not be
held liable for the loss suffered by Sps. Mamaril.

Manila International Airport Authority vs. Ding Velayo Sport Center Inc.
GR No. 161718, December 14, 2011
By: Clieford A. Rivera

Doctrine: The fact that an option [to renew a lease contract] is binding only on the lessor and can be
exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to
give or not to give the option to the lessee.

Facts:

MIAA entered into a contract of lease with Ding Velayo Sport Center Inc. The contract was
executed on May 14, 1976 for a term of 25 years. The contracted granted solely to the respondent the
option of renewing the lease of the subject property, the only express requirement was for the respondent
to notify petitioner of its decision to renew the lease within 60 days prior to the expiration of the original
lease. The contract specified how respondent should develop and use the subject property – that
respondent shall build certain improvements thereon (parking, shopping mall, sport facilities) and to
complete these improvement within 1 year, and that upon termination of the contract, the ownership of
any improvements thereon will be transferred to petitioner. Also, the contract prohibited respondent from
subleasing the subject property.

More than 60 days before the expiration of the contract, respondent thru a letter informed
petitioner that it sought to renew the lease contract. Petitioner replied that it wanted to increase the rentals.
Since they could not agree on the increase, petitioner declined to renew the contract.

Aggrieved, respondent brought the matter to the RTC arguing that the contract gave respondent
the option to renew the lease. Petitioner argued that the contract of lease cannot be left to the sole will of
the respondent for the same would be void for being a potestative condition. Petitioner further insisted,
during trial, on its right to refuse the renewal because of purported violations of the said Contract by
respondent, particularly: (1) subleasing of the premises; (2) failure to complete the required improvement
wthin 1 year. RTC ruled in favor of respondent. CA affirmed RTC. Hence, this petition.

Issue: Does respondent have the sole option to renew the lease?

Ruling:

Yes. Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality
of contracts. It provides that "the contract must bind both the contracting parties; its validity or
compliance cannot be left to the will of one of them." An express agreement which gives the lessee the
sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the
parties. The fact that such option is binding only on the lessor and can be exercised only by the lessee
does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to
the lessee.

It has not been disputed that said Contract of Lease was willingly and knowingly entered into by
petitioner and respondent. Thus, petitioner freely consented to giving respondent the exclusive right to
choose whether or not to renew the lease. While the Contract of Lease expressly obligated respondent to
build certain improvements, such as parking, shopping mall, and sports facilities, the belated insistence by
petitioner on compliance with the same appears to be a mere afterthought. Article 1235 of the Civil Code
states that [w]hen the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with. The contract
was executed May 14, 1976. Upon the expiration of the 1-yr period, petitioner did not express any

76
concern. It was only during trial that petitioner brought the matter up when the issue was brought to court
by respondent for petitioner’s refusal to renew the lease.

ANALITA P. INOCENCIO, substituting for RAMON INOCENCIO (Deceased)

vs. HOSPICIO DE SAN JOSE,
G.R. No. 201787, September 25, 2013
By: Roger Benjamin D. Solon

Doctrine:

Lease contracts, by their nature, are not personal. The general rule is lease contracts survive the death of
the parties and continue to bind the heirs except if the contract states otherwise.

Facts:

On March 1, 1946, Hospicio de San Jose (HDSJ) leased a parcel of land located in Pasay City to German
Inocencio (German). The lease contract was effective for a period of one year, and was renewed for one-
year periods several times. The last written contract was executed on May 31, 1951. Section 6 of the lease
contract provided in Spanish: “This contract is non transferable unless prior consent of the lessor is
obtained in writing.”

German constructed two buildings on the parcel of land which he subleased and designated his son
Ramon Inocencio (Ramon) to administer the said property. German passed away in 1997. Evidence
shows that Ramon did not notify HDSJ of German’s death. After German’s passing, Ramon collected the
rentals from the sublessees, and paid the rentals to HDSJ. On March 1, 2001, HDSJ’s property
administrator notified Ramon that HDSJ is terminating the lease contract effective March 31, 2001.
Ramon then sent a letter to HDSJ instead suggesting that the lease contract be renegotiated.

HDSJ then filed a Complaint before the Metropolitan Trial Court of Pasay for unlawful detainer against
Ramon and his sublessees when they did not vacate the premises. While the case was being tried Ramon
passed away and the MeTC allowed the substitution of Ramon by his wife, Analita.

The MeTC ruled in favor of HDSJ holding that the lease contract could not be transmitted to Ramon as
German’s heir in view of the express stipulation found therein. Aggrieved, Analita filed an appeal before
the RTC. The RTC dismissed Analita’s appeal and affirmed in toto the decision of the MeTC. Analita
then filed a petition for review under Rule 42 of the Rules of Court before the Court of Appeals. The
Court of Appeals affirmed the decision of the RTC but modified the award for damages. Hence, this
petition.

Issue

Whether or not the sublease contracts were valid

Ruling

Article 1311 of the Civil Code provides:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or
by provision of law. The heir is not liable beyond the value of the property he received from the decedent.

xxxx

We have previously ruled that lease contracts, by their nature, are not personal. The general rule,
therefore, is lease contracts survive the death of the parties and continue to bind the heirs except if the
contract states otherwise. In Sui Man Hui Chan v. Court of Appeals, we held that:

A lease contract is not essentially personal in character. Thus, the rights and obligations therein are
transmissible to the heirs. The general rule, therefore, is that heirs are bound by contracts entered into by
their predecessors-in-interest except when the rights and obligations arising therefrom are not

77
transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the subject Contract of Lease,
not only were there no stipulations prohibiting any transmission of rights, but its very terms and
conditions explicitly provided for the transmission of the rights of the lessor and of the lessee to their
respective heirs and successors. The contract is the law between the parties. The death of a party does not
excuse non-performance of a contract, which involves a property right, and the rights and obligations
thereunder pass to the successors or representatives of the deceased. Similarly, non-performance is not
excused by the death of the party when the other party has a property interest in the subject matter of the
contract.

Section 6 of the lease contract refers to transfers inter vivos and not transmissions mortis causa. What
Section 6 seeks to avoid is for the lessee to substitute a third party in place of the lessee without the
lessor’s consent. This merely reiterates what Article 1649 of the Civil Code provides:

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation
to the contrary.

In any case, HDSJ also acknowledged that Ramon is its month-to-month lessee in a letter dated March 1,
2001. Thus, the death of German did not terminate the lease contract executed with HDSJ, but instead
continued with Ramon as the lessee.

Assignment or transfer of lease, which is covered by Article 1649 of the Civil Code, is different from a
sublease arrangement, which is governed by Article 1650 of the same Code. In a sublease, the lessee
becomes in turn a lessor to a sublessee. The sublessee then becomes liable to pay rentals to the original
lessee. However, the juridical relation between the lessor and lessee is not dissolved. The parties continue
to be bound by the original lease contract. Thus, in a sublease arrangement, there are at least three parties
and two distinct juridical relations.

Ramon had a right to sublease the premises since the lease contract did not contain any stipulation
forbidding subleasing. Article 1650 of the Civil Code states:

Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublease
the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the
contract toward the lessor.

Therefore, we hold that the sublease contracts executed by Ramon were valid.

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner, 

vs.
AVIA FILIPINAS INTERNATIONAL, INC., Respondent.
G.R. No. 180168   February 27, 2012
By: Mark Jason S. Tirol

DOCTRINE:

Article 1306 of the Civil Code provides that the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."

Moreover, Article 1374 of the Civil Code clearly provides that the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken
jointly." Indeed, in construing a contract, the provisions thereof should not be read in isolation, but in
relation to each other and in their entirety so as to render them effective, having in mind the intention of
the parties and the purpose to be achieved.In other words, the stipulations in a contract and other contract
documents should be interpreted together with the end in view of giving effect to all.

FACTS:

In September 1990, herein petitioner Manila International Airport Authority (MIAA) entered into a
contract of lease with herein respondent Avia Filipinas International Corporation (AFIC), wherein MIAA

78
allowed AFIC to use specific portions of land as well as facilities within the Ninoy Aquino International
Airport exclusively for the latter's aircraft repair station and chartering operations. The contract was for
one (1) year, beginning September 1, 1990 until August 31, 1991, with a monthly rental of P6,580.00.

In December 1990, MIAA issued Administrative Order No. 1, Series of 1990, which revised the rates of
dues, charges, fees or assessments for the use of its properties, facilities and services within the airport
complex. The Administrative Order was made effective on December 1, 1990. As a consequence, the
monthly rentals due from AFIC was increased to P15,996.50. Nonetheless, MIAA did not require AFIC
to pay the new rental fee. Thus, it continued to pay the original fee of P6,580.00.

After the expiration of the contract, AFIC continued to use and occupy the leased premises giving rise to
an implied lease contract on a monthly basis. AFIC kept on paying the original rental fee without protest
on the part of MIAA.

Three years after the expiration of the original contract of lease, MIAA informed AFIC, through a billing
statement dated October 6, 1994, that the monthly rental over the subject premises was increased
to P15,966.50 beginning September 1, 1991, which is the date immediately following the expiration of
the original contract of lease. MIAA sought recovery of the difference between the increased rental rate
and the original rental fee amounting to a total of P347,300.50 covering thirty-seven (37) months between
September 1, 1991 and September 31, 1994. Beginning October 1994, AFIC paid the increased rental fee.
However, it refused to pay the lump sum ofP347,300.50 sought to be recovered by MIAA. For the
continued refusal of AFIC to pay the said lump sum, its employees were denied access to the leased
premises from July 1, 1997 until March 11, 1998. This, notwithstanding, AFIC continued paying its
rentals. Subsequently, AFIC was granted temporary access to the leased premises.

AFIC then filed with the RTC of Quezon City a Complaint for damages with injunction against MIAA
and its General Manager seeking uninterrupted access to the leased premises, recovery of actual and
exemplary damages, refund of its monthly rentals with interest at the time that it was denied access to the
area being rented as well as attorney's fees.

RTC ruled in favor of the respondent and was affirmed by CA with modification.

ISSUE:

Whether or not the Court of Appeals correctly interpreted the provisions of the lease contract in line with
the provisions of the Civil Code and existing jurisprudence on contracts

HELD:

Yes.

Article 1306 of the Civil Code provides that the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."

Moreover, Article 1374 of the Civil Code clearly provides that the various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken
jointly." Indeed, in construing a contract, the provisions thereof should not be read in isolation, but in
relation to each other and in their entirety so as to render them effective, having in mind the intention of
the parties and the purpose to be achieved.In other words, the stipulations in a contract and other contract
documents should be interpreted together with the end in view of giving effect to all.

In the present case, the Court finds nothing repugnant to law with respect to the questioned provisions of
the contract of lease between petitioner and respondent. It is true that Article II, Paragraph 2.04 of the
Contract of Lease states that any subsequent amendment to Administrative Order No. 4, Series of 1982,
which will effect a decrease or escalation of the monthly rental or impose new and additional fees and
charges, including but not limited to government/MIAA circulars, rules and regulation to this effect, shall
be deemed incorporated herein and shall automatically amend this Contract insofar as the monthly rental
is concerned." 

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However, the Court agrees with the CA that the abovequoted provision of the lease contract should not be
read in isolation. Rather, it should be read together with the provisions of Article VIII, Paragraph 8.13,
which provide that any amendment, alteration or modification of the Contract shall not be valid and
binding, unless and until made in writing and signed by the parties thereto. It is clear from the foregoing
that the intention of the parties is to subject such amendment to the conformity of both petitioner and
respondent. In the instant case, there is no showing that respondent gave his acquiescence to the said
amendment or modification of the contract.

MANUEL UY & SONS, INC., Petitioner, vs.VALBUECO, INCORPORATED, Respondent.

(G.R. No. 179594/September 11, 2013)
By: Cletus G. Villamor

Doctrine: Contract to sell distinguished from contract of sale; in a contract to sell,

ownership remains with the vendor and does not pass to the vendee until full payment
of the purchase price; a deed of sale is absolute when there is no stipulation in the
contract that title to the property remains with the seller until the full payment of the
purchase price.  In a conditional sale, as in a contract to sell, ownership remains with
the vendor and does not pass to the vendee until full payment of the purchase price.
The full payment of the purchase price partakes of a suspensive condition, and non-
fulfillment of the condition prevents the obligation to sell from arising. To differentiate, a
deed of sale is absolute when there is no stipulation in the contract that title to the
property remains with the seller until full payment of the purchase price.  .

Facts:

Petitioner Manuel Uy& Sons, Inc. is the registered owner of parcels of land located in Teresa,
Rizal.On November 29, 1973, two Conditional Deeds of Sale were executed by petitioner, as
vendor, in favor of respondent Valbueco, Incorporated, as vendee.

Respondent was able to pay petitioner the amount of P275,055.558 as partial payment for the two
properties corresponding to the initial payments and the first installments of the said properties.

At the same time, petitioner complied with its obligation under the conditional deeds of sale;however,
respondent suspended further payment as it was not satisfied with the manner petitioner complied
with its obligations under the conditional deeds of sale. Consequently, on March 17, 1978, petitioner
sent respondent a letter informing respondent of its intention to rescind the conditional deeds of sale
and attaching therewith the original copy of the respective notarial rescission.

On November 28, 1994, respondent filed a Complaint for specific performance and damages against
petitioner with the RTC of Antipolo City. However, the case was dismissed without prejudice for lack
of interest, as respondent's counsel failed to attend the pre-trial conference.

Five years later, respondent again filed with the RTC of Manila, Branch 1 a Complaint for specific
performance and damages, seeking to compel petitioner to accept the balance of the purchase price
for the two conditional deeds of sale and to execute the corresponding deeds of absolute sale.

In its Answer,petitioner argued that the case should be dismissed and that it could not be compelled
to execute any deed of absolute sale, because respondent failed to pay in full the purchase price of
the subject lots. Hence, respondent had no cause of action against it.

Issue:

Whetheror not,the Court of Appeals erred in directing it to execute deeds of absolute sale over the
subject lots even if respondent admitted non-payment of the balance of the purchase price.

Held:

As found by the Court of Appeals, the two conditional deeds of sale entered into by the parties are
contracts to sell, as they both contained a stipulation that ownership of the properties shall not pass

80
to the vendee until after full payment of the purchase price. In a conditional sale, as in a contract to
sell, ownership remains with the vendor and does not pass to the vendee until full payment of the
purchase price. The full payment of the purchase price partakes of a suspensive condition, and non-
fulfillment of the condition prevents the obligation to sell from arising. To differentiate, a deed of sale
is absolute when there is no stipulation in the contract that title to the property remains with the seller
until full payment of the purchase price.

Ramos v. Heruela held that Articles 1191 and 1592 of the Civil Code are applicable to contracts of
sale, while R.A. No. 6552 applies to contracts to sell.

The Court of Appeals correctly held that R.A. No. 6552, otherwise known as the Realty Installment
Buyer Act, applies to the subject contracts to sell. R.A. No. 6552 recognizes in conditional sales of
all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force.

TORTS

CathayPacificAirways vs. Reyes, et.al.

G.R.No.185891,June26,2013
By: Josephus T. Bernaldez

DOCTRINE:

Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff whose
right has been violated or invaded by the defendant, for the purpose of vindicating or recognizing that
right, not for indemnifying the plaintiff for any loss suffered.

FACTS:

Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his family’s trip to Adelaide, Australia scheduled from 12 April 1997 to 4 May
1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was
issued four (4) Cathay Pacific round-trip airplane tickets for Manila-HongKong-Adelaide-HongKong-
Manila.On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy
Reyes (Michael) and mother-in-law SixtaLapuz (Sixta), flew to Adelaide, Australia without a hitch.One
week before they were scheduled to fly back home, Wilfredo reconfirmed his family’s return flight with
the Cathay Pacific office in Adelaide. They were advised that the reservation was "still okay as
scheduled."

On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the airport on
time. When the airport check-in counter opened, Wilfredo was informed by a staff from Cathay Pacific
that the Reyeses did not have confirmed reservations, and only Sixta’s flight booking was confirmed.
Nevertheless, they were allowed to board the flight to HongKong due to adamant pleas from Wilfredo.
When they arrived in HongKong, they were again informed of the same problem. Unfortunately this time,
the Reyeses were not allowed to board because the flight to Manila was fully booked. Only Sixtawas
allowed to proceed to Manila from HongKong. On the following day, the Reyeseswere finally allowed to
board the next flight bound for Manila.

ISSUE:

Whether or not Sampaguita breached its contract of services with Wilfredo’s family?

RULING:

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 Since the contract between the parties is an ordinary one for services, the standard care required
of respondent is that of a good father of a family under Art. 1173 of the Civil Code. This connotes
reasonable care consistent with that which an ordinary prudent person woud have observed when
confronted with a similar situation.

 Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff whose right has
been violated or invaded by the defendant, for the purpose of vindicating or recognizing that right, not for
indemnifying the plaintiff for any loss suffered.

Considering that the three respondents were denied boarding their return flight from HongKong to Manila
and that they had to wait in the airport overnight for their return flight, they are deemed to have
technically suffered injury. Nonetheless, they failed to present proof of actual damages. Consequently,
they should be compensated in the form of nominal damages.

There was indeed failure on the part of sampaguita travel to exercise due diligence in performing its
obligations under the contract of services. It was established by Cathay Pacific, through the generation of
PNRs, that sampaguita travel failed to input the correct ticket number for Wilfredo’s ticket. The
negligence of sampaguita travel renders it also liable for damages.

FILCAR TRANSPORT SERVICES, Petitioner,

- versus -
JOSE A. ESPINAS, Respondent.
G.R. No. 174156
By: Garry Guimary

Facts:

Respondent's car was hit by another car who immediately escaped from the scene. But Espinas was able
to get its plate number. Espinas learned that the owner of the other car, with plate number UCF-545, is
Filcar Transport Services.

Espinas sent several letters to Filcar and to its President and General Manager Carmen Flor, demanding
payment for the damages sustained by his car but to no avail. Espinas filed a complaint for damages
against Filcar and Carmen Flor.

Filcar argued that while it is the registered owner of the car that hit and bumped Espinas car, the car was
assigned to its Corporate Secretary Atty. Candido Flor, the husband of Carmen Flor. Filcar further stated
that when the incident happened, the car was being driven by Atty. Flors personal driver, Timoteo
Floresca.

Filcar denied any liability to Espinas and claimed that the incident was not due to its fault or negligence
since Floresca was not its employee but that of Atty. Flor. Filcar and Carmen Flor both said that they
always exercised the due diligence required of a good father of a family in leasing or assigning their
vehicles to third parties.

Issue: Whether or not Filcar, as registered owner of the motor vehicle which figured in an accident, may
be held liable for the damages caused to Espinas.

Courts Ruling:

Filcar, as registered owner, is deemed the employer of the driver, Floresca, and is thus vicariously liable
under Article 2176 in relation with Article 2180 of the Civil Code.
Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated on an
employees act or omission may be instituted against the employer who is held liable for the negligent act
or omission committed by his employee.

In the case of Equitable Leasing Corporation v. Suyom,437 Phil. 244, 252 (2002). The registered owner
of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily

82
liable for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil
Code.

JOSE ESPINELI a.k.a. DANILO ESPINELI vs. PEOPLE OF THE PHILIPPINES,

G.R. No. 179535, June 9, 2014

By: Christine L. Imperial

Doctrine/s:

Moral damages are mandatory without need of allegation and proof other than the death of the
victim, owing to the fact of the commission of murder or homicide, such as when the victim was
gunned down in front of his house. If medical and funeral expenses were substantiated, actual
damages may be awarded. However, damages for loss of earning capacity may not be awarded
absent documentary evidence except where the victim was either self-employed or a daily wage
worker earning less than the minimum wage under current labor laws. The testimony of the wife of the
victim, a Senior Desk Coordinator of a radio station, as to the latter’s monthly salary without any
documentary evidence will not suffice to substantiate the claim.

Facts:

An information charging petitioner with the crime of murder was filed. The facts show that in the
early evening of December 15, 1996, Alberto Berbon y Downie (Alberto), 49 year old Senior Desk
Coordinator of the radio station DZMM, was shot in the head and different parts of the body in front of
his house in Imus, Cavite by unidentified who immediately fled the crime scene on board a waiting car.

Meanwhile, the group of Atty. OrlyDizon (AttyDizon) of the NBI arrested and took custody one
Romeo Reyes for the crime of Illegal Possession of Deadly weapon. Reyes confided to the group of
AttyDizon that he was willing to give vital information regarding the Berbon case. In due course, NBI
Agent Dave Segunia (NBI Agent Segunia) interviewed Reyes on Feb 10, 1997 and reduced his statement
into writing whereby Reyes claimed that on December 15, 1996, he saw petitioner and Sotero Paredes
(Paredes) board a red car while armed with a .45 caliber firearm and armalite, respectively; and that
petitioner told Paredes that “ayawkonangabutin pa ng bukassiBerbon.” Subsequently, Reyes posted bail
and was released on Feb 14, 1997. Thenceforth, he jumped bail and was never again heard of NBI Agent
Segunial testified on these facts during the trial.

Issue:

WON the accused is liable for damages

Held:

While the CA correctly imposed the amount of P50,000.00 as civil indemnity, it failed, however,
to award moral damages. These awards are mandatory without need of allegation and proof other than
death of the victim, owing to the fact of the commission of murder or homicide. Thus, for moral damages,
awarded P50,000 to the heirs of the victim is only proper.

Anent the award of actual damages, this court sees no reason to disturb the amount awarded by
the trial court as upheld by the CA since the itemized medical and burial expenses were duly supported by
receipts and other documentary evidence.

The CA did not grant any award of damages for loss of earning capacity and rightly so. Though
Sabina testified as to the monthly salary of the deceased, the same remains unsubstantiated. “Such
indemnity cannot be awarded in the absence of documentary evidence except when the victim was either

83
self-employed or a daily wage worker earning less than the minimum wage under the current labor laws.
The exceptions find no application in this case.

In addition and in conformity with current policy, an interest at the legal rate of 6% per annum is imposed
on all the monetary awards for damages from date of finality of this judgment until fully paid.

Filipinas Synthetic Fiber Corporation V. Wilfredo De Los Santos et.al

G.R. No. 152033. March 16, 2011
By: Joseph Alfie A. Logroño

Doctrine

Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any traffic regulation.

FACTS:

 On September 30, 1984, Teresa Elena Legarda-de los Santos, the wife of respondent Wilfredo de los
Santos was fetched by Wilfredo’s brother Armando, husband of respondent CarminaVda. de los Santos,
from Rizal Theater to after Teresa’s theater performance. Armando drove a 1980 Mitsubishi Galant
Sigma, a company car assigned to Wilfredo. Two other members of the cast of production joined Teresa
Elena in the Galant Sigma.

Around 11:30 p.m., while travelling along the Katipunan Road (White Plains), the Galant Sigma collided
with the shuttle bus owned by petitioner and driven by Alfredo S. Mejia (Mejia), an employee of
petitioner Filipinas Synthetic Corp. The Galant Sigma was dragged about 12 meters from the point of
impact, across the White Plains Road landing near the perimeter fence of Camp Aguinaldo, where the
Galant Sigma burst into flames and burned to death beyond recognition all four occupants of the car.

A criminal charge for reckless imprudence resulting in damage to property with multiple homicide was
brought against Mejia, which was decided in favor of Mejia (shuttle driver). A consolidated civil case was
filed by the families of the deceased against Mejia. The RTC ruled in favor of herein respondents.  After
the denial of the motion for reconsideration, petitioner appealed to the CA and the CA affirmed the
decision of the RTC. Hence this petition stating that the respondent court erred in finding Mejia negligent,
such not being supported by evidence on record.

ISSUE: Whether or not Mejia was negligent

HELD:

Petitioner argues that the RTC admitted that De los Santos made a turn along White Plains Road without
exercising the necessary care which could have prevented the accident from happening.  According to
petitioner, the sudden turn of the vehicle used by the victims should also be considered as negligence on
the part of the driver of that same vehicle, thus, mitigating, if not absolving petitioner’s liability.
However, the said argument deserves scant consideration.

It was well established that Mejia was driving at a speed beyond the rate of speed required by law,
specifically Section 35 of Republic Act No. (RA) 4136. Under the New Civil Code, unless there is proof
to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation. Apparently, in the present case, Mejia’s violation of the
traffic rules does not erase the presumption that he was the one negligent at the time of the collision. Even
apart from statutory regulations as to speed, a motorist is nevertheless expected to exercise ordinary care
and drive at a reasonable rate of speed commensurate with all the conditions encountered which will
enable him to keep the vehicle under control and, whenever necessary, to put the vehicle to a full stop to
avoid injury to others using the highway.

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A closer study of the Police Accident Report, Investigation Report and the sketch of the accident would
reveal nothing but that the shuttle bus was traveling at such a reckless speed that it collided with the car
bearing the deceased. 

BPI EXPRESS CARD CORPORATION vs. MA. ANTONIA R. ARMOVIT,

G.R. No. 163654, October 8, 2014
By: Jessa Faith S. Lumantas

Doctrine/s:

The relationship between the credit card issuer and the credit card holder is a contractual one that is
governed by the terms and conditions found in the card membership agreement. Such terms and
conditions constitute the law between the parties. In case of their breach, moral damages may be
recovered where the defendant is shown to have acted fraudulently or in bad faith.

Facts:

Armovit, then a depositor of BPI, was issued by BPI Express Credit a pre-approved BPI Express Credit
Card in 1989 that was to expire at the end of March 1993. On November 21, 1992, she treated her British
friends from Hong Kong to lunch at Mario's Restaurant in the Ortigas Center in Pasig. As the host, she
handed to the waiter her credit card to settle the bill, but the waiter soon returned to inform her that her
credit card had been cancelled upon verification with BPI Express Credit and would not be honored.
Inasmuch as she was relying on her credit card because she did not then carry enough cash that day, her
guests were made to share the bill to her extreme embarrassment.

Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She learned that her
credit card had been summarily cancelled for failure to pay her outstanding obligations. She vehemently
denied having defaulted on her payments. Thus, she demanded compensation for the shame,
embarrassment and humiliation she had suffered in the amount of P2,000,000.00.

In its reply letter, BPI Express Credit claimed that it had sent Armovit a telegraphic message on March
19, 1992 requesting her to pay her arrears for three consecutive months, and that she did not comply with
the request, causing it to temporarily suspend her credit card effective March 31, 1992. It further claimed
that she had been notified of the suspension and cautioned to refrain from using the credit card to avoid
inconvenience or embarrassment; and that while the obligation was settled by April, 1992, she failed to
submit the required application form in order to reactivate her credit card privileges. Thus, BPI Express
Credit countered that her demand for monetary compensation had no basis in fact and in law.

On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit apologizing for its
error of inadvertently including her credit card in Caution List No. 225 dated March 11, 1993 sent to its
affiliated merchants. As a result, Armovit sued BPI Express Credit for damages in the RTC.

Issue:

Whether or not the CA erred in sustaining the award of moral and exemplary damages in favor of
Armovit.

Held:

85
The Terms and Conditions Governing the Issuance and Use of the BPI Express Credit Card printed on the
credit card application form spelled out the terms and conditions of the contract between BPI Express
Credit and its card holders, including Armovit. Such terms and conditions determined the rights and
obligations of the parties. Yet, a review of such terms and conditions did not reveal that Armovit needed
to submit her new application as the antecedent condition for her credit card to be taken out of the list of
suspended cards. In the context of the contemporaneous and subsequent acts of the parties, the only
condition for the reinstatement of her credit card was the payment of her outstanding obligation. Had it
intended otherwise, BPI Express Credit would have surely informed her of the additional requirement in
its letters of March 19, 1992 and March 31, 1992. That it did not do so confirmed that they did not agree
on having her submit the new application form as the condition to reactivate her credit card.

Bereft of the clear basis to continue with the suspension of the credit card privileges of Armovit, BPI
Express Credit acted in wanton disregard of its contractual obligations with her. We concur with the apt
observation by the CA that BPI Express Credit's negligence was even confirmed by the telegraphic
message it had addressed and sent to Armovit apologizing for the inconvenience caused in inadvertently
including her credit card in the caution list. It was of no consequence that the telegraphic message could
have been intended for another client, as BPI Express Credit apparently sought to convey subsequently,
because the tenor of the apology included its admission of negligence in dealing with its clients, Armovit
included. Indeed, BPI Express Credit did not observe the prudence expected of banks whose business was
imbued with public interest.

Phil Hawk Corp v. Vivian Tan Lee,

GR No. 166869, Feb. 16, 2010
By: Maria Theresa T. Macatangay

Doctrine/s:

The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of the Civil
Code. Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to earn
money.

Facts:

Vivian Tan Lee filed before the RTC a Complaint against petitioner Philippine Hawk Corporation
and defendant Margarito Avila for damages based on quasi-delict, arising from a vehicular accident that
occurred on March 17,. The accident involved a motorcycle, a passenger jeep, and a bus. The bus was
owned by petitioner Philippine Hawk Corporation, and was then being driven by Margarito Avila. The
accident resulted in the death of respondent’s husband, Silvino Tan, and caused respondent physical
injuries. Respondent sought the payment of indemnity for the death of Silvino Tan, moral and exemplary
damages, funeral and interment expenses, medical and hospitalization expenses, the cost of the
motorcycle’s repair, attorney’s fees, and other just and equitable reliefs.

Respondent further testified that her husband was leasing and operating a Caltex gasoline station
in Gumaca, Quezon that yielded one million pesos a year in revenue. They also had a copra business,
which gave them an income of P3,000.00 a month or P36,000.00 a year.

In this case for damages based on quasi-delict, the trial court awarded respondent the sum of
P745,575.00, representing loss of earning capacity (P590,000.00) and actual damages (P155,575.00 for
funeral expenses), plus P50,000.00 as moral damages. On appeal, the CA sustained the award by the
trial court for loss of earning capacity of the deceased Silvino Tan, moral damages for his death, and
actual damages, although the amount of the latter award was modified.

Issue/s:

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 Were the damages awarded by the Court of Appeals proper?

Held:
No. It should be modified.

The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of
the Civil Code.  Compensation of this nature is awarded not for loss of earnings, but for loss of
capacity to earn money.

As a rule, documentary evidence should be presented to substantiate the claim for damages for
loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded
despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less
than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact
that in the deceased's line of work no documentary evidence is available; or (2) the deceased is employed
as a daily wage worker earning less than the minimum wage under current labor laws.

In this case, the records show that respondent’s husband was leasing and operating a Caltex
gasoline station in Gumaca, Quezon.   Respondent testified that her husband earned an annual income of
one million pesos. Respondent presented in evidence a Certificate of Creditable Income Tax Withheld at
Source for the Year 1990, which showed that respondent’s husband earned a gross income of
P950,988.43 in 1990. It is reasonable to use the Certificate and respondent’s testimony as bases for fixing
the gross annual income of the deceased at one million pesos before respondent’s husband died on March
17, 1999.   However, no documentary evidence was presented regarding the income derived from their
copra business; hence, the testimony of respondent as regards such income cannot be considered.  

In the computation  of  loss of earning capacity, only net earnings, not gross earnings, are to be
considered; that is, the total of the earnings less expenses necessary for the creation of such earnings or
income, less living and other incidental expenses. In the absence of documentary evidence, it is
reasonable to peg necessary expenses for the lease and operation of the gasoline station at 80 percent of
the gross income, and peg living expenses at 50 percent of the net income (gross income less necessary
expenses).   

In this case, the computation for loss of earning capacity is as follows:

Net Earning Capacity = Life Expectancy  x  Gross Annual Income – Reasonable and Necessary
Expenses          
X = [2/3 (80-age at the time of death)] x [(GAI) – 80% of GAI
X = [2/3 (80-65)]  x  P1,000,000.00   -   P800,000.00
X=  2/3 (15)  x P200,000.00  -  P100,000.00 (Living Expenses)
X=  30/3      x      P100,000.00
X=  10    x      P100,000.00
X=  P1,000,000.00

The CA also awarded actual damages for the expenses incurred in connection with the death,
wake, and interment of respondent’s husband in the amount of P154,575.30, and the medical expenses of
respondent in the amount of P168,019.55.

Actual damages must be substantiated by documentary evidence, such as receipts, in order to

prove expenses incurred as a result of the death of the victim or the physical injuries sustained by the
victim.  A review of the valid receipts submitted in evidence showed that the funeral and related expenses
amounted only to P114,948.60,  while the medical expenses of respondent  amounted only to
P12,244.25,  yielding a total of P127,192.85 in actual damages.     

b.4. Attorney’s fees and interest

Art. 2208, NCC.In the absence of stipulation, attorney’s fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:

87
 When exemplary damages are awarded;
When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;
In criminal cases of malicious prosecution against the plaintiff;
In case of a clearly unfounded civil action or proceeding against the plaintiff;
Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s
plainly valid, just and demandable claim;
In actions for legal support;
In actions for the recovery of wages of household helpers, laborers and skilled workers;
In actions for indemnity under workmen’s compensation and employer’s liability laws;
In separate civil action to recover civil liability arising from a crime;
When at least double judicial costs are awarded;
In any other case where the court deems it just and equitable that attorney’s fees and expenses of
litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
Art. 2209, NCC.If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per
cent per annum.
Art. 2212, NCC. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.

DRA, LEILA A DELA LLANO, vs. REBECCA BIONG

G.R. No. 182356 December 4, 2013
By: Arief A. Mamao

DOCTRINE The plaintiff must first establish by preponderance of evidence the three elements of quasi-
delict before determining the liability of the employer.

FACTS

Dra. dela Llana, was seated at the front passenger seat of a car driven by his brother. A few seconds after
the car halted, a dump truck containing gravel and sand suddenly rammed the car’s rear end, violently
pushing the car forward. Due to the impact, the car’s rear end collapsed and its rear windshield was
shattered. Glass splinters flew, puncturing Dra. dela Llana.

The traffic investigation report identified the truck driver as Joel Primero. Joel later revealed that his
employer was respondent Rebecca Biong, doing business under the name and style of "Pongkay Trading".

During the first week, Dra. dela Llana began to feel mild to moderate pain on the left side of her neck and
shoulder. Her injury became more severe. Dr. Milla told her that she suffered from a whiplash injury, an
injury caused by the compression of the nerve running to her left arm and hand.

The operation released the impingement of the nerve, but incapacitated Dra. dela Llana from the practice
of her profession since June 2000 despite the surgery. Dra. dela Llana, demanded from Rebecca
compensation for her injuries, but Rebecca refused to pay.

ISSUE Whether or not Rebecca Biong is liable for damages

RULING

No. Dra. dela Llana failed to establish her case by preponderance of evidence.

Article 2176 of the Civil Code provides that "[w]hoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is a quasi-delict." Under this provision, the
elements necessary to establish a quasi-delict case are:

88
(1) damages to the plaintiff;
(2) negligence, by act or omission, of the defendant or by some person for whose acts the defendant must
respond, was guilty; and
(3) the connection of cause and effect between such negligence and the damages.

These elements show that the source of obligation in a quasi-delict case is the breach or omission of
mutual duties that civilized society imposes upon its members, or which arise from noncontractual
relations of certain members of society to others.

Based on these requisites, Dra. dela Llana must first establish by preponderance of evidence the three
elements of quasi-delict before we determine Rebecca’s liability as Joel’s employer.

Solidum vs. People

G.R. No. 192123, March 10, 2014
By: Ron Stephane Maylon

Doctrine/s:

In order to allow resort to the doctrine, therefore, the following essential requisites must first be
satisfied, to wit:

(1) the accident was of a kind that does not ordinarily occur unless someone is negligent;

(2) the instrumentality or agency that caused the injury was under the exclusive control
of the person charged; and

(3) the injury suffered must not have been due to any voluntary action or contribution of
the person injured.

Facts:

Gerald Albert Gercayo (Gerald) was born on June 2, 1992 with an imperforate anus. Two days
after his birth, Gerald underwent colostomy, a surgical procedure to bring one end of the large
intestine out through the abdominal wall, enabling him to excrete through a colostomy bag
attached to the side of his body.

Gerald, then three years old, was admitted at the OspitalngMaynila for a pull-through
operation. During the operation, Gerald experienced bradycardia, 7 and went into a coma. 8 His
coma lasted for two weeks,but he regained consciousness only after a month.10 He could no
longer see, hear or move.

Agitated by her son’s helpless and unexpected condition, Ma. Luz Gercayo (Luz) lodged a
complaint for reckless imprudence resulting in serious physical injuries with the City
Prosecutor’s Office of Manila against the attending physicians.

The City Prosecutor’s Office filed an information solely against Dr. Solidum.

The RTC rendered its judgment finding Dr. Solidum guilty beyond reasonable doubt of reckless
imprudence resulting to serious physical injuries.

The CA affirmed the conviction of Dr. Solidum.

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Issue/s:

Whether or not the court was correct in applying Res IpsaLoquitor.

Held:

No. Res ipsa loquitur is literally translated as "the thing or the transaction speaks for itself." The
doctrine res ipsa loquitur means that "where the thing which causes injury is shown to be under
the management of the defendant, and the accident is such as in the ordinary course of things
does not happen if those who have the management use proper care, it affords reasonable
evidence, in the absence of an explanation by the defendant, that the accident arose from want of
care."

Medical malpractice cases do not escape the application of this doctrine. Thus, res ipsa loquitur
has been applied when the circumstances attendant upon the harm are themselves of such a
character as to justify an inference of negligence as the cause of that harm. The application of res
ipsa loquitur in medical negligence cases presents a question of law since it is a judicial function
to determine whether a certain set of circumstances does, as a matter of law, permit a given
inference.

In order to allow resort to the doctrine, therefore, the following essential requisites must first be
satisfied, to wit:

(1) the accident was of a kind that does not ordinarily occur unless someone is negligent;

(2) the instrumentality or agency that caused the injury was under the exclusive control of
the person charged; and

(3) the injury suffered must not have been due to any voluntary action or contribution of
the person injured.

The Court considers the application here of the doctrine of res ipsa loquitur inappropriate.
Although it should be conceded without difficulty that the second and third elements were
present, considering that the anesthetic agent and the instruments were exclusively within the
control of Dr. Solidum, and that the patient, being then unconscious during the operation, could
not have been guilty of contributory negligence, the first element was undeniably wanting.
Luz delivered Gerald to the care, custody and control of his physicians for a pull-through
operation. Except for the imperforate anus, Gerald was then of sound body and mind at the time
of his submission to the physicians. Yet, he experienced bradycardia during the operation,
causing loss of his senses and rendering him immobile. Hypoxia, or the insufficiency of oxygen
supply to the brain that caused the slowing of the heart rate, scientifically termed as bradycardia,
would not ordinarily occur in the process of a pull-through operation, or during the
administration of anesthesia to the patient, but such fact alone did not prove that the negligence
of any of his attending physicians, including the anesthesiologists, had caused the injury. In fact,
the anesthesiologists attending to him had sensed in the course of the operation that the lack of
oxygen could have been triggered by the vago-vagal reflex, prompting them to administer
atropine to the patient.

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 California Clothing, Inc. and Michelle S. Ybanez vs. Shirley G. Quinones
G.R. No. 175822. October 23, 2013
By: Christine Joymarie A. Perias

Doctrine:

Any abuse in the exercise of such right and in the performance of duty causing damage or injury to
another is actionable under the Civil Code. Article 20. Every person who, contrary to law, willfully or
negligently causes damage to another shall indemnify the latter for the same. Article 21. Any person who
willfully causes loss or injury to another in a manner that is contrary to morals or good customs, or
public policy shall compensate the latter for the damage.

Facts:

Respondent Quiñones, a Reservation Ticketing Agent of Cebu Pacific Air, went inside the Guess USA
Boutique at the second floor of Robinson’s Department Store in Cebu City. She then decided to purchase
the black jeans. Respondent allegedly paid to the cashier evidenced by a receipt issued by the store. While
she was walking through the skywalk connecting Robinson’s and Mercury Drug Store where she was
heading next, a Guess employee approached and informed her that she failed to pay the item she got. She,
however, insisted that she paid and showed the employee the receipt issued in her favor. She then
suggested that they talk about it at the Cebu Pacific Office located at the basement of the mall.

When she arrived at the Cebu Pacific Office, the Guess employees allegedly subjected her to humiliation
in front of the clients of Cebu Pacific. On the same day, the Guess employees allegedly gave a letter to
the Director of Cebu Pacific Air narrating the incident, but the latter refused to receive it as it did not
concern the office. Another letter was allegedly prepared and was supposed to be sent to the Cebu Pacific
Office in Robinson’s, but the latter again refused to receive it. With the above experience, respondent
claimed to have suffered physical anxiety, sleepless nights, mental anguish, fright, serious apprehension,
besmirched reputation, moral shock and social humiliation. She thus filed the Complaint for Damages
against petitioners California Clothing, Inc. She demanded the payment of moral, nominal, and exemplary
damages, plus attorney’s fees and litigation expenses.

Petitioners and the other defendants admitted the issuance of the receipt of payment. They claimed,
however, that instead of the cashier (Hawayon) issuing the official receipt, it was the invoicer
(Villagonzalo) who did it manually. They explained that there was miscommunication between the
employees at that time because prior to the issuance of the receipt, the former believed to mean that the
item has already been paid. Realizing the mistake, Villagonzalo rushed outside to look for respondent and
when he saw the latter, he invited her to go back to the shop to make clarifications as to whether or not
payment was indeed made. Instead, however, of going back to the shop, respondent suggested that they
meet at the Cebu Pacific Office.

RTC: rendered a decision dismissing both the complaint and counterclaim of the parties. From the
evidence presented, it concluded that the petitioners and the other defendants believed in good faith that
respondent failed to make payment. Considering that no motive to fabricate a lie could be attributed to the
Guess employees, the court held that when they demanded payment from respondent, they merely
exercised a right under the honest belief that no payment was made. It likewise did not find it damaging
for respondent when the confrontation took place in front of Cebu Pacific clients, because it was
respondent herself who put herself in that situation by choosing the venue for discussion. In other words,
it found no evidence to prove bad faith on the part of the Guess employees to warrant the award of
damages

CA: On appeal, it reversed and set aside the RTC decision. CA found preponderance of evidence showing
that they acted in bad faith in sending the demand letter to respondent’s employer. It found respondent’s
possession of both the official receipt and the subject black jeans as evidence of payment. Contrary to the

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findings of the RTC, the CA opined that the letter addressed to Cebu Pacific’s director was sent to
respondent’s employer not merely to ask for assistance for the collection of the disputed payment but to
subject her to ridicule, humiliation and similar injury such that she would be pressured to pay.
Considering that Guess already started its investigation on the incident, there was a taint of bad faith and
malice when it dragged respondent’s employer who was not privy to the transaction. This is especially
true in this case since the purported letter contained not only a narrative of the incident but accusations as
to the alleged acts of respondent in trying to evade payment. The appellate court thus held that petitioners
are guilty of abuse of right entitling respondent to collect moral damages and attorney’s fees.

MR: denied

Hence this petition for review.

Issue:

Whether or not CA erred in awarding moral damages and attorneys’ fees

Held:

Respondent’s complaint against petitioners stemmed from the principle of abuse of rights provided for in
the Civil Code on the chapter of human relations. Respondent cried foul when petitioners allegedly
embarrassed her when they insisted that she did not pay for the black jeans she purchased from their shop
despite the evidence of payment, which is the official receipt, issued by the shop. The issuance of the
receipt notwithstanding, petitioners had the right to verify from respondent whether she indeed made
payment if they had reason to believe that she did not. However, the exercise of such right is not without
limitations. Any abuse in the exercise of such right and in the performance of duty causing damage or
injury to another is actionable under the Civil Code.

In the sphere of our law on human relations, the victim of a wrongful act or omission, whether done
willfully or negligently, is not left without any remedy or recourse to obtain relief for the damage or
injury he sustained. Incorporated into our civil law are not only principles of equity but also universal
moral precepts which are designed to indicate certain norms that spring from the fountain of good
conscience and which are meant to serve as guides for human conduct. First of these fundamental
precepts is the principle commonly known as "abuse of rights" under Article 19 of the Civil Code. It
provides that " Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due and observe honesty and good faith." The elements of abuse of rights
are as follows: (1) there is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent
of prejudicing or injuring another.

In this case, petitioners claimed that there was a miscommunication between the cashier and the invoicer
leading to the erroneous issuance of the receipt to respondent. They, thus, concluded that it was
respondent who failed to make such payment. It was, therefore, within their right to verify from
respondent whether she indeed paid or not and collect from her if she did not. However, the question now
is whether such right was exercised in good faith or they went overboard giving respondent a cause of
action against them.

It can be inferred from the foregoing that in sending the demand letter to respondent’s employer,
petitioners intended not only to ask for assistance in collecting the disputed amount but to tarnish
respondent’s reputation in the eyes of her employer. To malign respondent without substantial evidence
and despite the latter’s possession of enough evidence in her favor, is clearly impermissible. A person
should not use his right unjustly or contrary to honesty and good faith, otherwise, he opens himself to
liability.

Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.

Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals or good customs, or public policy shall compensate the latter for the damage.

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In view of the foregoing, respondent is entitled to an award of moral damages and attorney s fees. Moral
damages may be awarded whenever the defendant is wrongful act or omission is the proximate cause of
the plaintiffs physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injury in the cases specified or analogous to those
provided in Article 2219 of the Civil Code. Moral damages are not a bonanza. They are given to ease the
defendant’s grief and suffering. They should, thus, reasonably approximate the extent of hurt caused and
the gravity of the wrong done.

Snow Mountain Dairy Corporation vs. GMA Veterans Force Inc.,

G.R. No. 192446, November 19, 2014
By: Jurdelyn C. Repaso
Doctrine:

Actual damages are not presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the best evidence obtainable.

FACTS:

The complainant GMA Veterans Force, Inc. filed a Complaint for Damages against defendant
Snow Mountain Dairy Corporation. Previously, complainant and defendant entered into a security service
agreement whereby. Just after a month, defendant informed complainant that all of the latter’s security
personnel would be replaced and all monies due in the contract will be settled. Complainant responded
reminding defendant that the contract is good for a year which could only be terminated for a just cause
and a 30-day prior notice. Further, even if complainant waived the requirements for pre-termination,
defendant would be liable to pay the remaining period of 8 1/2 months equivalent to P952,833.00.

The respondent, represented by De Guzman, filed with the Regional Trial Court (RTC) of Pasig
City a complaint11 for damages against petitioner, represented by Amancio Ronquillo, and President Po.
Respondent alleged that it had entered in a security service agreement with petitioner; that it had recruited
seven security guards and posted them to petitioner's premises in compliance with the service agreement
and in the process, incurred expenses for training, physical and medical examinations, documentations,
procurement of equipments like service firearms, uniform and related expenses; that on April 15, 2005,
respondent's security guards were barred by petitioner from entering the service area and prevented from
performing their contractual obligation; that it did not commit any violation of the service contract; and
that it incurred income opportunity loss worth P952,833.00 which it could have earned if the agreement
was faithfully honored up to the end of the contract period. Respondent prayed for actual, moral and
exemplary damages, and attorney's fees.

In their Answer with Counterclaim, petitioner denied the material allegations in the complaint
and contended that a corporation has a personality separate and distinct from its officers; thus, the
inclusion of President Po as defendant was baseless; that the termination of the agreement was justified
and well within its prerogative; that there was no basis for the claim of actual damages in the form of
unrealized income as said claim was premised on a contingent circumstance, which was the fulfillment
and completion of the security agreement; and that respondent's claim for moral and exemplary damages
should be denied for lack of basis. Petitioner counterclaimed for damages.

The Regional Trial Court ruled that the parties agreed that the contract cannot be terminated
except for a just cause and only after a 30-day notice; that respondent did not assent to the pre-
termination; and that there was no valid cause shown for such termination and the provision of 30-day
notice was not complied with. The RTC found that respondent was compelled to incur expenses for
attorney's fees and cost of litigation.Petitioner appealed the RTC decision to the Court of Appeals. After
the filing of the respective pleadings, the case was submitted for decision.

The CA ruled in the negative as petitioner miserably failed to show the cause of such pre-
termination. It found that petitioner's claim that respondent's service was below the standard required by
the contract was not substantiated, hence, a mere afterthought; and that petitioner's termination letter of
the service contract made no mention of the alleged security lapses. It then affirmed the RTC's award of

93
actual damages in the amount of P952,833.50 which respondent failed to receive as benefit which would
have pertained to it had petitioner not illegally terminated the service contract.

The CA deleted the award of attorney's fees since no evidence was presented to support the same.
Lastly, the CA found that President Po cannot be held personally liable for the pre-termination of the
service contract, since as President, he was duly authorized to act on behalf of the corporation; and the
pre-termination was done in his official capacity and there was no evidence showing that he had acted in
bad faith.

ISSUE:

Whether or not the Honorable Court of Appeals a quo erred when it failed to delete or modify the
award of P952,833.50 in actual/compensatory damages in favor of respondent GMA Veterans Force, Inc.

RULING: 

Yes. The Supreme Court said that clearly, there was no basis for the lower court's award of actual
damages in the absence of evidence proving the same. Undeniably, however, respondent suffered
pecuniary loss because of the pre-termination of its services without any valid cause. But since there was
no proof capable of ascertaining the actual loss, the court refers to Article 2224 of the Civil Code which
provides that temperate or moderate damages, which are more than nominal but less than compensatory
damages may be recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be proved with certainty.

Temperate damages may be allowed in cases where from the nature of the case, definite proof of
pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some
pecuniary loss. We also take into consideration that respondent certainly spent for the security guard's
training, firearms with ammunitions, uniforms and other necessary things before their deployment to
petitioner

The complainant was awarded P200,000.00 for temperate damages in lieu of actual damages. It is
a well settled rule that “actual or compensatory damages are those awarded in satisfaction of, or in
recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to
repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty.
The burden is to establish one’s case by a preponderance of evidence which means that the evidence, as a
whole, adduced by one side, is superior to that of the other. Actual damages are not presumed. The
claimant must prove the actual amount of loss with a reasonable degree of certainty premised upon
competent proof and on the best evidence obtainable. Specific facts that could afford a basis for
measuring whatever compensatory or actual damages are borne must be pointed out. The award of actual
damages cannot be simply based on the mere allegation of a witness without any tangible claim, such as
receipts or other documentary proofs to support such claim.”

The lower courts awarded P952,833.50 actual or compensatory damages representing the
remaining or unserved portion of the contract. The computation was based on the P16,014,00 per guard
per month multiplied by 7 security guards and multiplied by the unserved portion. “However, the
contracted amount of P16,014,00 per guard would not totally pertain to [complainant] as the same would
cover the wage of the security guard and only the remaining portion of the contracted amount, i.e., after
deducting the guard’s salary, would go to [complainant]. In this case, [complainant] had not shown that
the security guards were not assigned to another employer, and that it was compelled to pay the guards
despite the pre-termination of the security agreement to be entitled to the amount of P16,014.00 per
month. Indeed, no evidence was presented by [complainant] establishing the actual amount of loss
suffered by reason of the pre-termination. It is elementary that to recover damages, there must be pleading
and proof of actual damages suffered.”

Notwithstanding, it is undeniable that complainant suffered pecuniary loss because of the pre-
termination of its services without valid cause. As there was no proof, temperate or moderate damages
would be proper. “Temperate damages may be allowed in cases where from the nature of the case,
definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved
party suffered some pecuniary loss. The Supreme Court took into consideration that [complainant]

94
certainly spent for the security guard’s training, firearms with ammunitions, uniforms and other necessary
things before their deployment to [defendant].”

AIRFRANCE, Petitioner, vs. BONIFACIO H. GILLEGO, substituted by his surviving heirs

represented by Dolores P. Gillego, Respondent.
G.R. No. 165266 December 15, 2010
By: Ian Rene F. Tabada
Facts:

On May 16, 1993, respondent left Manila on board petitioner Air France’s aircraft bound for
Paris, France. He arrived in Paris early morning of May 17, 1993 (5:00 a.m.). While waiting at
the De’ Gaulle International Airport for his connecting flight to Budapest scheduled at 3:15 p.m.
that same day, respondent learned that petitioner had another aircraft bound for Budapest with
an earlier departure time (10:00 a.m.) than his scheduled flight. He then went to petitioner’s
counter at the airport and made arrangements for the change in his booking. He was given a
corresponding ticket and boarding pass for Flight No. 2024 and also a new baggage claim stub
for his checked-in luggage.5
However, upon arriving in Budapest, respondent was unable to locate his luggage at the
claiming section. He sought assistance from petitioner’s counter at the airport where petitioner’s
representative verified from their computer that he had indeed a checked-in luggage. He was
advised to just wait for his luggage at his hotel and that petitioner’s representatives would take
charge of delivering the same to him that same day. But said luggage was never delivered by
petitioner’s representatives despite follow-up inquiries by respondent.
Upon his return to the Philippines, respondent’s lawyer immediately wrote petitioner’s Station
Manager complaining about the lost luggage and the resulting damages he suffered while in
Budapest. Respondent thus demanded the sum of P1,000,000.00 from the petitioner as
compensation for his loss, inconvenience and moral damages.6 Petitioner, however, continued
to ignore respondent’s repeated follow-ups regarding his lost luggage.

Issue:

Whether the amounts awarded to respondent as moral and exemplary damages are excessive,
unconscionable and unreasonable.

Ruling:

A business intended to serve the travelling public primarily, a contract of carriage is

imbued with public interest. The law governing common carriers consequently imposes an
exacting standard. Article 1735 of the Civil Code provides that in case of lost or damaged
goods, common carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required by Article 1733. Thus, in an
action based on a breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier.
In awarding moral damages for breach of contract of carriage, the breach must be
wanton and deliberately injurious or the one responsible acted fraudulently or with malice or bad
faith. Not every case of mental anguish, fright or serious anxiety calls for the award of moral
damages. Where in breaching the contract of carriage the airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen or could have
reasonably foreseen. In such a case the liability does not include moral and exemplary
damages.

The purpose of awarding moral damages is to enable the injured party to obtain means,
diversion or amusement that will serve to alleviate the moral suffering he has undergone by
reason of defendant's culpable action. On the other hand, the aim of awarding exemplary
damages is to deter serious wrongdoings.36 Article 2216 of the Civil Code provides that
assessment of damages is left to the discretion of the court according to the circumstances of

95
each case. This discretion is limited by the principle that the amount awarded should not be
palpably excessive as to indicate that it was the result of prejudice or corruption on the part of
the trial court. Simply put, the amount of damages must be fair, reasonable and proportionate to
the injury suffered.

MARIANO C. MENDOZA and ELVIRA LIM,vs.

SPOUSES LEONORA J. GOMEZ and GABRIEL V. GOMEZ
G.R. No. 160110   June 18, 2014
By: Angeline C. Ygaña

Doctrine: As a rule, in so far as third persons are concerned, the registered owner of the motor vehicle
is the employer of the negligent driver, and the actual employer is considered merely as an agent of such
owner. Thus, whether there is an employer-employee relationship between the registered owner and the
driver is irrelevant in determining the liability of the registered owner who the law holds primarily and
directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets
and highways.

Facts:

On 7 March 1997, an Isuzu Elf truck with owned by respondent Leonora J. Gomez and driven by
Anteno Jenes Perez was hit by a Mayamy Transportation bus registered under the name of petitioner
Elvira Lim and driven by petitioner Mariano C. Mendoza.

An Information for reckless imprudence resulting in damage to property and multiple physical injuries
was filed against Mendoza. Mendoza, however, eluded arrest, thus, respondents filed a separate complaint
for damages against Mendoza and Lim, seeking actual damages, compensation for lost income, moral
damages, exemplary damages, attorney’s fees and costs of the suit.

According to PO1 Melchor F. Rosales (PO1 Rosales), investigating officer of the case, at around 5:30
a.m., the Isuzu truck, coming from Katipunan Road and heading towards E. Rodriguez, Sr. Avenue, was
travelling along the downward portion of Boni Serrano Avenue when, upon reaching the corner of
Riviera Street, fronting St. Ignatius Village, its left front portion was hit by the Mayamy bus. According
to PO1 Rosales, the Mayamy bus, while traversing the opposite lane, intruded on the lane occupied by the
Isuzu truck.

As a result of the incident, Perez,as well as the helpers on board the Isuzu truck, namely Melchor V. Anla
(Anla), Romeo J. Banca (Banca), and Jimmy Repisada (Repisada), sustained injuries necessitating
medical treatment amounting to P11,267.35,which amount was shouldered by respondents. Moreover, the
Isuzu truck sustained extensive damages on its cowl, chassis, lights and steering wheel, amounting to
P142,757.40.

Additionally, respondents averred that the mishap deprived them of a daily income of P1,000.00.
Engaged in the business of buying plastic scraps

For their part, petitioners capitalized on the issue of ownership of the bus in question. Respondents argued
that although the registered owner was Lim, the actual owner of the bus was SPO1 Cirilo Enriquez
(Enriquez), who had the bus attached with Mayamy Transportation Company (Mayamy Transport) under
the so-called "kabit system."

After weighing the evidence, the RTC found Mendoza liable for direct personal negligence under Article
2176 of the Civil Code, and it also found Lim vicariously liable under Article 2180 of the same Code.

Issues:

96
 1. Whether or not Mendoza’s negligence was duly proven.
2. Whether or not the petitioner is liable.
3. Whether or not the petitioner is liable to pay the damages asked for.

Ruling:

1. Respondents anchor their claim for damages on Mendoza’s negligence, banking on Article 2176
of the Civil Code, to wit:

In impleading Lim, on the other hand, respondents invoke the latter’s vicarious liability as espoused in
Article 2180 of the same Code:
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business of industry.

The first question to address, then, is whether or not Mendoza’s negligence was duly proven. Negligence
is defined as the failure to observe for the protection of the interests of another person, that degree of care,
precaution and vigilance which the circumstances justly demand, whereby such other person suffers
injury.21

As found by the RTC, and affirmed by the CA, Mendoza was negligent in driving the subject Mayamy
bus, as demonstrated by the fact that, at the time of the collision, the bus intruded on the lane intended for
the Isuzu truck. Having encroached on the opposite lane, Mendoza was clearly in violation of traffic laws.
Article2185 of the Civil Code provides that unless there is proof to the contrary, it is presumed that a
person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic
regulation. In the case at bar, Mendoza’s violation of traffic laws was the proximate cause of the harm.

The mishap occurred when the Mayamy bus, travelling at a fast speed as shown by the impact of the
collision, and going in the opposite direction as that of the Isuzu truck, encroached on the lane rightfully
occupied by said Isuzu truck, and caused the latter to spin, injuring Perez, Anla, Banca, and Repisada, and
considerably damaging the Isuzu truck.

2. The negligence having caused the damage, Mendoza is certainly liable to repair said damage.

Additionally, Mendoza’s employer may also be held liable under the doctrine of vicarious liability or
imputed negligence. Under such doctrine, a person who has not committed the act or omission which
caused damage or injury to another may nevertheless be held civilly liable to the latter either directly or
subsidiarily under certain circumstances. 25 In our jurisdiction, vicarious liability or imputed negligence is
embodied in Article 2180 of the Civil Code and the basis for damages in the action under said article is
the direct and primary negligence of the employer in the selection or supervision, or both, of his
employee.26

In the case at bar, who is deemed as Mendoza’s employer? Is it Enriquez, the actual owner of the bus or
Lim, the registered owner of the bus?

Xxx Citing Equitable Leasing Corporation v. Suyom, 28 the Court ruled that in so far as third persons are
concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the
actual employer is considered merely as an agent of such owner. Thus, whether there is an employer-
employee relationship between the registered owner and the driver is irrelevant in determining the
liability of the registered owner who the law holds primarily and directly responsible for any accident,
injury or death caused by the operation of the vehicle in the streets and highways. 29

Generally, when an injury is caused by the negligence of a servant or employee, there instantly arises a
presumption of law that there was negligence on the part of the master or employer either in the selection
of the servant or employee (culpa in eligiendo) or in the supervision over him after the selection (culpa
vigilando), or both. The presumption is juristantum and not juris et de jure; consequently, it may be

97
rebutted. Accordingly, the general rule is that if the employer shows to the satisfaction of the court that in
the selection and supervision of his employee he has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved of liability. 32 However, with the enactment of the
motor vehicle registration law, the defenses available under Article 2180 of the Civil Code - that the
employee acts beyond the scope of his assigned task or that it exercised the due diligence of a good father
of a family to prevent damage – are no longer available to the registered owner of the motor vehicle,
because the motor vehicle registration law, to a certain extent, modified Article 2180. 33

As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.

This does not mean, however, that Lim is left without any recourse against Enriquez and Mendoza. Under
the civil law principle of unjust enrichment, the registered owner of the motor vehicle has a right to be
indemnified by the actual employer of the driver; and under Article 2181 of the Civil Code, whoever pays
for the damage caused by his dependents or employees may recover from the latter what he has paid or
delivered in satisfaction of the claim.

1. Having identified the persons liable, our next question is what may be awarded.

Actual or Compensatory Damages. Actual or compensatory damages are those awarded in satisfaction of,
or in recompense for, loss or injury sustained. They simply make good or replace the loss caused by the
wrong.34

Article 2202 of the Civil Code provides that in crimes and quasi delicts, the defendant shall be liable for
all damages which are the natural and probable consequences of the act or omission complained of. It is
not necessary that such damages have been foreseen or could have reasonably been foreseen by the
defendant. Article 2199 of the same Code, however, sets the limitation that, except as provided by law or
by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him
as he has duly proved. As such, to warrant an award of actual or compensatory damages, the claimant
must prove that the damage sustained is the natural and probable consequences of the negligent act and,
moreover, the claimant must adequately prove the amount of such damage.

In the case at bar, the RTC, the respondents are entitled for indemnification of Isuzu truck because it is
duly proven. While the claim for loss of income cannot be given due to lack of proofs.

Moral Damages. Moral damages are awarded to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's
culpable action.35

To be entitled to such an award, the claimant must satisfactorily prove that he has suffered damages and
that the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil
Code. Moreover, the damages must be shown to be the proximate result of a wrongful act or omission.
The claimant must thus establish the factual basis of the damages and its causal tie with the acts of the
defendant.

In the case at bar, the respondents failed to adduce evidence that they are entitled with moral damages.

xxx

In Kierulf v. CA,39 we observed that this Court cannot remind the bench and the bar often enough that in
order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental
anguish, fright and the like. Citing Francisco v. GSIS, 40 the Court held that there must be clear testimony
on the anguish and other forms of mental suffering. Thus, if the plaintiff fails to take the witness stand
and testify as to his social humiliation, wounded feelings and anxiety, moral damages cannot be awarded.

Moreover, respondents were not able to show that their claim properly falls under Articles 2219 and 2220

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of the Civil Code. Respondents cannot rely on Article 2219 (2) of the Civil Code which allows moral
damages in quasi-delicts causing physical injuries because in physical injuries, moral damages are
recoverable only by the injured party, 41 and in the case at bar, herein respondents were not the ones who
were actually injured.

Thus, Article 21 finds no application to the case at bar. All in all, we find that the RTC and the CA erred
in granting moral damages to respondents. Exemplary Damages. Article 2229 of the Civil Code provides
that exemplary or corrective damages are imposed, by way of example or correction for the public good,
in addition to moral, temperate, liquidated or compensatory damages. Article 2231 of the same Code
further states that in quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.

Our jurisprudence sets certain conditions when exemplary damages may be awarded: First, they may be
imposed by way of example or correction only in addition, among others, to compensatory damages, and
cannot be recovered as a matter of right, their determination depending upon the amount of compensatory
damages that may be awarded to the claimant. Second, the claimant must first establish his right to moral,
temperate, liquidated or compensatory damages. Third, the wrongful act must be accompanied by bad
faith, and the award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.44

In motor vehicle accident cases, exemplary damages may be awarded where the defendant’s misconduct
is so flagrant as to transcend simple negligence and be tantamount to positive or affirmative misconduct
rather than passive or negative misconduct. In characterizing the requisite positive misconduct which will
support a claim for punitive damages, the courts have used such descriptive terms as willful, wanton,
grossly negligent, reckless, or malicious, either alone or in combination. 45

Gross negligence is the absence of care or diligence as to amount to a reckless disregard of the safety of
persons or property. It evinces a thoughtless disregard of consequences without exerting any effort to
avoid them.46

In the case at bar, having established respondents’ right to compensatory damages, exemplary damages
are also in order, given the fact that Mendoza was grossly negligent in driving the Mayamy bus.

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